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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________TO ____________.
COMMISSION FILE NUMBER: 0-21432
AUSPEX SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 93-0963760
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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2300 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95050
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 566-2000/WEB SITE
(WWW.AUSPEX.COM)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. YES [ ] NO [X]
As of September 13, 1999, 27,443,990 shares of Common Stock of Registrant
were outstanding. The aggregate market value of the shares held by
non-affiliates of the Registrant (based upon the closing price of the
Registrant's Common Stock on September 13, 1999 of $9.75 per share) was
approximately $187,220,446.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive proxy
statement for the Annual Meeting of Stockholders scheduled to be held on
November 18, 1999.
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TABLE OF CONTENTS
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PART I................................................................ 4
ITEM 1. BUSINESS.................................................... 4
The Company................................................. 4
Markets and Customers....................................... 5
Products.................................................... 6
Distribution................................................ 9
Customer Service and Support................................ 9
Manufacturing............................................... 10
Research and Development.................................... 10
Competition................................................. 11
Intellectual Property and Licenses.......................... 11
Employees................................................... 12
Executive Officers of the Company........................... 12
ITEM 2. PROPERTIES.................................................. 14
ITEM 3. LEGAL PROCEEDINGS........................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 14
PART II............................................................... 14
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS......................................... 14
ITEM 6. SELECTED FINANCIAL DATA..................................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 16
Results of Operations....................................... 16
Revenues.................................................... 16
Gross Margin................................................ 17
Operating Expenses.......................................... 17
Other Income................................................ 18
Provision for Income Taxes.................................. 18
Quarterly Results of Operations............................. 19
Liquidity and Capital Resources............................. 20
Factors That May Affect Future Results...................... 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISKS....................................................... 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 26
PART III.............................................................. 26
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 27
ITEM 11. EXECUTIVE COMPENSATION...................................... 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 27
PART IV............................................................... 27
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 27
(a) 1. FINANCIAL STATEMENTS................................. 27
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2. FINANCIAL STATEMENT SCHEDULES............................ 28
3. EXHIBITS................................................. 28
(b) REPORTS ON FORM 8-K..................................... 31
SIGNATURES............................................................ 31
POWER OF ATTORNEY..................................................... 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................. 32
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS............................. S-0
SUPPLEMENTAL SCHEDULES................................................ S-1
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INTRODUCTORY STATEMENT
References made in this Annual Report on Form 10-K to "Auspex," the
"Company," or the "Registrant" refer to Auspex Systems, Inc. and its wholly
owned subsidiaries. AUSPEX, the Auspex logo design, DataGuard, DriveGuard, FMK,
FMP, Functional Multi-Processing, Functional Multi-Processing Kernel, Functional
Multi-Processor, Functional Multiprocessor NS5000 and ServerGuard are registered
trademarks of the Company. Auspex 4Front, Auspex Control Points, All the Data
All the Time, ClusterGuard, Continuous Data Access, Data Xcelerator Engines,
DataXpress, DataXpress kernel, FastFlo File System, NetOS, NetServer,
NeTservices, Playground, ServerGuard Global, Thrive Carefully and XceleRAID are
trademarks of the Company.
FORWARD-LOOKING STATEMENT
FROM TIME TO TIME, THE COMPANY MAY PUBLISH STATEMENTS THAT ARE NOT
HISTORICAL FACTS BUT ARE FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL
DEVELOPMENTS, NEW PRODUCTS, RESEARCH AND DEVELOPMENT ACTIVITIES AND SIMILAR
MATTERS. SUCH STATEMENTS ARE GENERALLY IDENTIFIED BY THE USE OF FORWARD-LOOKING
WORDS AND PHRASES, SUCH AS "INTENDED," "EXPECTS," "ANTICIPATES" AND "IS (OR ARE)
EXPECTED (OR ANTICIPATED)." THESE FORWARD-LOOKING STATEMENTS INCLUDE BUT ARE NOT
LIMITED TO THOSE IDENTIFIED WITH AN ASTERISK (*) SYMBOL. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
STOCKHOLDERS OF AUSPEX SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET
FORTH IN THIS FORM 10-K, INCLUDING FACTORS THAT MAY AFFECT FUTURE RESULTS.
AUSPEX MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS CONTAINED IN AUSPEX'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO STOCKHOLDERS. AUSPEX
DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENTS THAT MAY BE MADE
FROM TIME TO TIME BY OR ON BEHALF OF AUSPEX.
PART I
ITEM 1. BUSINESS
THE COMPANY
Auspex was formed in 1987 and was incorporated in Delaware in 1991. The
Company develops, manufactures, distributes and supports a line of
multi-protocol (NFS(1), CIFS(2) and FTP(3)) Network Attached Storage devices
also referred to as network file servers which include specialized software for
storing, serving and managing network data.
In fiscal 1999, the Company completed a two-year transition in order to
increase market share by addressing a larger portion of the Network Attached
Storage ("NAS") market. The two-year process of corporate renewal included a
fundamental shift in the Company's business model and product development
strategy. The Company made significant investments to develop all-new core NAS
technologies and re-focused its product development plans to become
software-centric. The Company also changed its business
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1 NFS denotes the Network File System protocol, first promulgated by Sun
Microsystems, Inc. ("Sun Microsystems"), and since widely adopted by the
workstation market as a de facto standard for network file transfers.
2 CIFS refers to the Common Internet File Service protocol developed by
Microsoft Corporation as a networking protocol for PC clients to access
files on a PC file server in a Local Area Network ("LAN") or Wide Area
Network ("WAN").
3 FTP ("File Transfer Protocol") is a standard protocol commonly used to
retrieve or store files on network file servers. FTP is supported on UNIX,
Windows, VMS, Macintosh and other popular desktop computers.
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model from developing on a custom hardware platform to implementing its all-new
NAS data delivery software architecture on industry-standard hardware (Intel) in
order to improve price/performance and time-to-market. This process created the
all-new core software technologies that underpin the current generation of the
NetServer product line.
In fiscal 1999, the Company also made substantial investments in its
customer service organization by redeploying its technical resource to the field
and increasing the engineering support organization to 178 at fiscal year-end.
The Company's customer support model is comprised of two components: the
Company's highly trained technical engineering support organization, which helps
customers solve complex problems associated with the network data delivery
chain, from the storage to the desktop. The Company utilizes NCR for straight
parts replacement.
The Company's objective is to deliver mission-critical network data-access
solutions across heterogeneous platforms (UNIX, Windows NT). The Company
characterizes its new and broader vision as "All the data, All the time"(TM),
which reflects Auspex's objectives for reliability, scalability, network
Input/Output ("I/O") performance and customer support.
The Company's heritage is based on the creation of a specialized
device -- the industry's first "thin" server or specialized file server -- which
utilizes highly efficient software to optimize I/O performance. The primary
market for the Company's product was known as the file server market, which
today is known as the Network Attached Storage (NAS) market. A leading
independent industry analyst projects the NAS market will grow from $986 million
in calendar year 1999 to more than $5 billion by the calendar year 2003 (Source:
International Data Corp., 1999).*
MARKETS AND CUSTOMERS
Historically, the Company's customer base has been largely comprised of
Fortune 1000 customers in the enterprise technical computing market. Auspex has
twelve years of networking expertise in this market by delivering enterprise
class data availability and scalability solutions, which is a key competitive
differentiator versus mid-range NAS appliance as well as general-purpose server
companies. The Company believes this core competency creates a barrier for entry
into the NAS market for general-purpose server companies that may be looking to
establish a position in the high-growth NAS market. For the Company to increase
footprint in the enterprise market as well as extend its reach into department
and workgroup environments in the NAS market, it implemented a number of
strategies including improving price/performance three-fold over legacy models
and introducing a high-performance Windows NT software option in June of 1999 to
take advantage of the growth in heterogeneous UNIX and Windows NT environments.
In addition, during the last fiscal year, the Company achieved Oracle Storage
Compatibility Program certification, which opens an opportunity for NAS in the
commercial/database market. At the same time, based on the growth in the last
twelve months in e-commerce, the Internet market has begun to shift its purchase
criteria away from appliances and into building e-business, enterprise-class
network infrastructures that deliver high availability, scalability and
reliability. In the Internet market space, NetServers are deployed in much the
same way as they have been in the technical market -- as the key resource for
consolidation of data and delivery of content. The similarities between the
Internet space and the Company's core franchise in technical computing include
requirements for data availability and scalability. There can be no assurance,
however, that the Company will be able to adapt its NetServers to commercial and
e-business markets or that it will be able to penetrate such markets.*
As of June 30, 1999, approximately 2,700 NetServers had been shipped to
over 500 customers worldwide. Reflecting the NetServer's particular suitability
to the performance requirements of large-scale client/server systems, networks
supporting more than 50 users account for more than 80% of the Company's
installed base. Within the NAS market, NetServers are used most commonly for the
following applications: software development, electronic computer-aided design
("ECAD") and electronic computer-aided engineering ("ECAE"), seismic and
geophysical modeling, scientific and academic research, mechanical
computer-aided design ("MCAD"), technical publishing and financial services.
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* See "Forward-Looking Statements" on page 4.
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Sales of products and services to the following customers accounted for 10%
or more of total revenues in the periods indicated: fiscal 1997 -- Intel
Corporation ("Intel")(10%) and America Online ("AOL")(15%); fiscal
1998 -- Intel(20%); and fiscal year 1999 -- Intel(20%). Intel is not obligated
to purchase any minimum level of products from the Company. Accordingly, there
can be no assurance that sales of products and services to these customers will
not decline, either in absolute dollar amounts or as a percentage of total
revenues, in future periods and that any such declines will not have a material
adverse effect on the Company's results of operations.*
PRODUCTS
In fiscal 1999, the Company introduced its new generation of NAS products.
The new system architecture is designed to store, manage and deliver data to
network clients with a continual focus on reliability, scalability, UNIX/Windows
NT file sharing and price/performance. The new 4Front(TM) NS2000 hardware design
is based on industry standard hardware integrated into simple, yet powerful
subsystems called I/O Nodes. Using an UltraSPARC Node, which runs standard
Solaris, the most widely used version of UNIX, the user can take advantage of
the large variety of management applications that exist for that platform.
Multiple I/O nodes can be connected to a single UltraSPARC Node, using the
Scalable Coherent Interface ("SCI") to create architecture that scales to
provide vast amounts of storage and network connectivity. Each I/O Node supports
multiple network connections -- including all common network interfaces -- and
connects directly to more than three terabytes of disk storage. A two-node
system will support six terabytes, and a three-node system will support nine and
one-half terabytes.
The NS2000 is based on the Company's patented NerOS kernel, which underpins
its NAS architecture. NetOS separates network processing from storage
processing, independently scaling networks and storage. It also offers
multi-protocol support and provides parallel backup paths for rapid data
archiving.
This architecture utilizes Functional Multi-Processing, which dedicates
processors to specific tasks, such as network protocol processing -- Network
File System ("NFS") and Common Internet File System ("CIFS") -- file system
management and storage management and control.
The File and Storage Processing ("FSP") kernel incorporates the FastFLO
File System, that provides reliability and performance using advanced journaling
technology. The FSP also supports File and Block level Snapshots for consistent
system backup and data protection. Full support is provided on the host Node for
the Network Data Management Protocol ("NDMP"). NDMP-compliant backup software
executing on the host or another network system can be used to direct each I/0
Node to backup its data at high speeds by streaming data directly from disk to
tape using Data Xcelerator Engines.
The Company has implemented a hardware RAID subsystem leveraging Mylex
technology with Auspex's XceleRAID firmware controllers to connect directly into
the high-density disk array ("HDDA"). The HDDA provides a very large amount of
storage in a package that has the same form factor as the I/O Node itself. All
drives in the array are hot-plugable to ensure rapid, on-line replacement in the
event of a problem. A single I/O Node maximally configured with three XceleRAID
controllers and three HDDAs will support a total of three terabytes of storage,
based on using 36-gigabyte drives. A two-node system will support six terabytes,
and three-node system will support nine and one-half terabytes. The Company
believes it has the highest storage density per floor tile in the industry.
Using this system architecture delivers three key benefits: first, higher
reliability as there is no operating system in the data path; second, seamless
growth for networking and storage as users add I/O Nodes to their system
configuration; and third, because it appears to the system administrator as a
single system image, they can cost effectively, configure for maximum
performance based on the application environment.
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* See "Forward-Looking Statements" on page 4.
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The Company believes that the importance of the benefits of its new product
to large-scale client/server systems is demonstrated by the fact that over 80%
of the approximately 2,700 file servers shipped support networks with 50 - 800
users per server.*
OPTIONAL NS2000 SOFTWARE
There are two software options that can be purchased with the NS200. The
first, DataGuard(TM), allows users to continuously access data in the event of a
disruption associated with the host operating system. Because the data movement
function is isolated from the Solaris, total system availability improves.
The second product, NetServices 2.0, delivers seamless file sharing between
UNIX and Windows NT clients in order to facilitate collaboration and reduce the
total cost of ownership relative to replicating data on separate UNIX and
Windows NT servers. While UNIX continues to dominate the back-end, enterprise
environments are evolving to include Windows NT clients. Thus, the requirement
to integrate Windows (including NT, 98, 95 and Windows for Workgroups),
seamlessly into the enterprise has assumed a critical position. Combining
Windows and UNIX environments poses a very important data services challenge:
having separate, distributed data servers for Windows data versus consolidating
both types of data on a single platform. Significant benefits in the area of
performance, data management, availability and file sharing can be obtained by
consolidating UNIX and Windows data on a single, enterprise-class file server
platform.
NetServices 2.0 delivers the Windows NT 4.0 networking environment
including directory services, file security and remote administration that is
essential for enterprise-level deployment of Windows-based networks.
NetServices 2.0 is also the fastest Windows NT server available today,
based on independent industry standard benchmarks. The product's ZD NetBench
5.01 test results exceeded 58 megabytes per second throughout. NetServices 2.0
allows administrators to manage just one physical copy of the shared data, with
transparent, secure sharing of individual files by UNIX and Windows NT clients.
Because no client software is required, NetServices 2.0 does not create the
additional overhead of per-client administration. Locking mechanisms provide
data protection while there is concurrent file access by UNIX and Windows NT
clients. Fiscal 1999 software licenses represented approximately 3% of Company
revenue.
NetServer prices range from approximately $53,000 to $1,200,000, depending
on the configuration. While system price varies considerably according to the
configuration purchased, the average sales price per system in fiscal year 1999
for North American direct sales was approximately $298,000, and for distributor
and international sales, approximately $113,000. Lower average sales prices per
system for international distributor sales are attributable to the fact that
most servers sold through these channels are sold in smaller configurations and
at higher discounts.
The Company's strategy is to introduce new products and offer upgrades to
existing products periodically.* There can be no assurance that some customers
will not cancel orders for existing products or delay orders in anticipation of
new product availability, and should cancellations and delays occur, the
Company's revenues and operating results could be materially and adversely
affected.
TECHNOLOGY
Underpinning the NS2000 product line are unique software technologies that
are dedicated to optimizing performance at each step of the data delivery chain,
including:
System Management System management for the NS2000 is accomplished through
a simple but powerful browser interface, Control Point. Key functions of the
file server can be managed locally from the host console or remotely from any
compatible browser. Multiple servers can be monitored and managed from the same
console if desired. Control Point is implemented entirely in Java, providing for
advanced features
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* See "Forward-Looking Statements" on page 4.
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beyond the abilities of simple HTML management tools, while ensuring portability
and ease of use. Command line equivalents are also available for all Control
Point functions.
Data Management The DataXcelerator Engines are a unique data transfer
facility that use two data-moving engines -- the Block DataXcelerator ("BDX")
and the File DataXcelerator ("FDX") -- to provide acceleration for system backup
and data movement. The Block DataXcelerator provides the capability to stream
blocks of data from disk to tape, tape to disk, or disk to disk. BDX provides
the foundation for extremely rapid image backup. The File DataXcelerator
provides a similar interface that acts at the level of individual files,
streaming file data from file to file, from file to tape, or from tape to file.
FDX provides the basis for rapid file by file backup to direct-attached tape.
The DataXcelerator Engines provide the basis for advanced data management,
allowing data to be easily migrated between file systems, between disk volumes,
or between Nodes.
Network Processing The DataXpress Kernel is a very efficient software
kernel that interfaces to the network client and acts as the manager of all data
requests. DataXpress provides greater software reliability and improved
performance. Unlike conventional operating systems, the DataXpress kernel does
not use virtual memory. All necessary code is stored in local memory so that it
can be immediately executed when needed. Because the kernel working set is
typically small, processors get the greatest possible advantage from their
built-in instruction caches, typically finding needed code already cached.
Therefore, not only does DataXpress avoid disk accesses to retrieve
instructions, even memory accesses are often avoided.
File System Processing The file system plays a critical role in data
management. As the demand for disk storage continues to grow, the file system
must scale to handle huge file systems, very large files, and very large numbers
of files, single directories with thousands of entries and the file semantics
and attributes of both UNIX and Windows NT environments. At the same time, the
file system must be able to maintain its internal accounting and recover quickly
in the event of an unexpected power outage or other failure. Auspex licensed
file system technology from PLC and integrated it with the Company's patented
NetOS system software for performance, scalability and reliability. Auspex's
file system software -- FastFLO -- uses journaling technology to ensure the file
system's structural integrity. It also incorporates advanced software for File
Layout Optimization and writes clustering techniques to minimize file
fragmentation and enhance read operations. FastFLO supports both UNIX and
NT/Windows security and access control natively in the file system. This
protects files access security attributes for UNIX and Windows NT files during
backup and restore because the attributes are not stored in a separate file -- a
limitation in some NT/Windows emulation software solutions currently on the
market.
In addition, FastFLO includes a very large disk buffers cache (I/O cache
memory) on the network and file processing element, which gives users the
flexibility to configure the amount of memory to meet their application
performance needs.
Storage Processing Auspex's XceleRAID firmware acts as the interface to
storage and provides multiple high-speed RAID controllers to deliver high
availability and protect data from disk failure. Supported RAID levels include:
RAID 0, RAID 1, RAID 5 and RAID 7 (JBOD). XceleRAID is responsible for virtual
partition management on the storage devices, write acceleration, channel
management, disk and tape control and data transfers to I/O cache memory.
LEGACY MODELS
In the first quarter of fiscal 1999, the Company introduced new high-end
servers, the NS8000/850 and NS8000/350, which superseded the NS7000 line of
products. By improving upon the strengths of the NS7000, the NS8000/850
delivered improved price/performance, higher density disk packaging and new
networking capabilities. The high-density disk packaging provided a migration
path for customers to the Company's next-generation platform, the NS2000,
introduced in March 1999.
The NS7000 NetServer line of products was introduced in fiscal 1996 and
evolved into the NS8000. Each product in the NS7000 line of products could
simultaneously support applications such as high-speed, on-line
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system backup as well as NFS I/O operations without one activity impairing the
performance of the other. Predecessors of the NS7000 line of products were the
NS5000, NS5500 and NS6000 NetServers.
Legacy software In fiscal 1995, the Company commenced shipment of its first
software product, DataGuard(TM), which allowed users to continuously access
their data in the event of a disruption associated with the UNIX host operating
system. In March 1996, the Company began shipping its second software product,
ServerGuard(TM). ServerGuard(TM) operated between multiple Auspex servers
providing the industry's first local and wide area network-based fail-over and
disaster recovery system for uninterrupted service. In fiscal 1997, the Company
introduced FastBackup(TM), a software product that enabled a customer to achieve
DLT-based backup and restore throughput of up to 100 gigabytes per hour
cost-effectively. The Company also introduced DriveGuard(TM), an embedded RAID 5
solution for high-availability data protection in fiscal 1997. DriveGuard(TM)
provided mission-critical data security, at a significantly lower cost than that
of mirrored configurations. In fiscal 1998, the Company introduced NeTservices
1.0, a software product that allowed UNIX and Windows NT clients to share files
on the same platform with reliability, performance and scalability.
DISTRIBUTION
In order to leverage the Company's investment in all-new core NAS
technology, during fiscal 1999, the Company initiated a strategy to expand
overall sales capacity through the addition of direct and indirect channels.
In fiscal 1999, product sales to end users in North America were primarily
through a direct sales force. However, with the introduction of the Company's
enterprise-class and appliance products, the Company began to implement an
indirect sales strategy and infrastructure in North America. Because the success
of the Company's direct sales efforts in North America is dependent in part upon
a sophisticated analysis of the customers' networking requirements, the
Company's system engineers work closely with the Company's sales
representatives. The Company has a direct sales organization in the United
Kingdom, France and Germany, and employs distributors in other selected European
markets. In the Pacific Rim (primarily Japan), the Company has a sales team to
support an indirect sales model.
Historically, in the Pacific Rim, the Company's distribution strategy
included original equipment manufacturer ("OEM") and distribution agreements
with Fuji Xerox and Nissho, respectively, in Japan. In fiscal 1997, the Company
realigned its channel distribution strategy by signing a Master Value Added
Distributor Agreement ("MVAD") with Fuji Xerox, and redefined its relationship
with Nissho. Under the MVAD, Fuji Xerox, formerly the Company's OEM partner in
Japan acts as a non-exclusive supplier of the Company's products to resellers in
Japan.
Auspex believes that the large installed base of UNIX systems in Europe
represents a significant opportunity for future NetServer sales*. To address
this opportunity, the Company has direct sales and support facilities in the
United Kingdom, France and Germany. The Company also has entered into agreements
with distributors covering other selected markets in Europe. The Company has
continued to invest in sales and marketing efforts in Europe.
CUSTOMER SERVICE AND SUPPORT
Auspex's corporate policies are based on a commitment to customer
satisfaction and product quality.
The Company provides customer training and installs, maintains and supports
systems sold directly in North America and Europe. End-user customers purchasing
through indirect channels are generally serviced by the Company's distributors
or OEMs. In all cases, however, customers have direct access to Auspex service
and support through a toll-free telephone hotline available to customers,
distributors and service partners. All customer service call management and
software support is handled directly by Auspex through its technical
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* See "Forward-Looking Statements" on page 4.
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support centers twenty-four (24) hours a day, three hundred sixty-five (365)
days a year, by highly trained and experienced technical support engineers.
In addition to the technical support center located in Santa Clara,
California, the Company has established a second U.S. support center in Cary,
North Carolina and a European technical support center in the United Kingdom to
handle service calls from its European customers. In fiscal 1998, the Company
shifted 60 percent of service personnel into the field in order to increase
responsiveness and enhance customer support. To supplement direct service and
support and to ensure the highest quality service while containing costs, Auspex
has entered into strategic service agreement with NCR Corporation for on-site
hardware support. The Company's contract provide end users with a warranty for
parts and labor on its products, generally range from ninety (90) days to one
year. The Company's warranty policy for product sales other than to end-users
depends on the requirements of the particular distribution channel. The Company
offers its customers service agreements of varying duration. Service revenue is
recognized ratably over the contractual period as service is provided.
MANUFACTURING
Auspex's manufacturing operations, located in Santa Clara, California,
consists of product assurance, quality control and final product assembly and
test. The Company relies principally on contract manufacturers for sub-assembly
and testing of certain key NetServer components. These manufacturers have
continued to operate under the terms of their business relationships with the
Company on a month-to-month basis. The Company's manufacturing strategy has been
to develop close relationships with its suppliers, exchange critical information
and implement joint quality training programs. This manufacturing strategy
minimizes capital investment and overhead expenditures and creates flexibility
by providing the capacity for rapid expansion. Although the Company to date has
not experienced any significant production difficulties resulting from its
reliance on these manufacturers, it is possible that production difficulties,
including capacity constraints and quality control issues, could arise in the
future, which could materially and adversely affect the Company's results of
operations.
Although the Company generally uses standard parts and components for its
products, a number of key components used in the Company's NetServer products
currently are available or purchased from sole or single sources. These
components include disk and tape drives, microprocessors, connectors, printed
circuit boards, cable assemblies, power supplies and ASICs. Some of the
suppliers of these components have divisions which compete with the Company.
(See "Business -- Competition.") The Company generally has agreements with its
sole source suppliers with terms ranging from one to five years and believes
that alternative sources of supply and assembly for most of its sole-source
components could be obtained within a commercially practicable period.* As a
precaution, the Company carries extra inventory of some of its sole-source
components to provide additional time to develop an alternate supply source or
redesign the component. However, the lack of sufficient quantities of sole or
single source components, or the inability to develop alternative sources for
these items, could result in delays or reductions in product shipments which
would materially and adversely affect the Company's results of operations.
RESEARCH AND DEVELOPMENT
The market for high-performance network data servers has been characterized
by rapid technological advances in both hardware and software development. The
Company believes that the speed of technological advancement in its industry
requires it to invest significant amounts in research and development, and that
in order to maintain its competitive position, the Company must continue to
enhance and improve its existing products as well as to develop and successfully
introduce new products. During fiscal 1999, the Company introduced the
4Front(TM) product family. The Auspex 4Front(TM) NS2000 is the flagship product
which incorporates significant new software technology that utilizes
industry-standard platforms in order to deliver network data rapidly and
reliably to vast number of heterogeneous clients and servers. The Auspex
4Front(TM)
- ---------------
* See "Forward-Looking Statements" on page 4.
10
<PAGE> 11
Appliances are tuned to deliver the right amount of performance at the right
price with the functionality and ease-of-use to minimize overhead.
By continuing to introduce new product features, the Company believes it
has maintained a leadership position in the network attached storage market.
However, there can be no assurance that the Company's products will continue to
be successful commercially. Furthermore, there can be no assurance that the
Company will be able to develop or introduce other new products in the future in
a timely manner, or that such products will be a commercial success. The Company
intends to continue to invest substantially in product development.* Current
research and development efforts are focused on delivering additional optional
software products and increasing the functionality, client protocol support,
performance, capacity, scalability and availability of its products.
The Company's research and development expenses during fiscal years 1999,
1998 and 1997 were approximately $35.3 million, $34.0 million and $24.4 million
respectively.
COMPETITION
The network attached storage market is very competitive. Within the
NFS-compatible, UNIX data server market segment, manufacturers of
general-purpose multiprocessor servers represent the Company's primary source of
competition. These manufacturers include Network Appliance, Sun Microsystems,
Hewlett-Packard Company, Silicon Graphics, Inc. and IBM. Traditional storage
vendors, such as EMC Corporation, are also attempting to expand into network
attached storage. Sun Microsystems is the Company's main competitor. All of
these competitors possess substantially greater financial, technical and
marketing resources than Auspex, as well as substantially larger product
installed bases. While the Company believes that the price/performance
characteristics of its products are competitive, increased competition created
pricing pressures in fiscal 1999, which materially and adversely affected the
Company's results of operations.
The Company derives a significant portion of its revenues from sales of
product upgrades to its installed base, including additional processors (or
upgrades to existing processors), memory, disk and tape drive and software.
Although the Company has to date experienced limited competition in the sale of
upgrades, increased competition against these products may occur in the future
which could materially and adversely affect the Company's revenues and results
of operations.
Auspex believes that an important competitive factor is hardware and
software solutions for data availability and network data server performance.
Other important factors include product reliability, availability, scalability,
upgradeability, price, and overall cost of ownership and technical service and
support. The Company's ability to maintain its competitive position will depend,
in addition to these factors, upon its success anticipating industry trends,
investing in product research and development and effectively managing the
introduction of new products into targeted markets.*
INTELLECTUAL PROPERTY AND LICENSES
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, employee and third-party non-disclosure agreements and other
intellectual property protection methods to protect its proprietary hardware,
software and technological expertise. The Company believes, however, that its
continued success will depend principally on continuing innovation,
technological expertise, knowledge of networking, storage and applications,
distribution strength and, to a lesser extent, on its ability to protect its
proprietary technology.* Furthermore, there can be no assurance that the
Company's current or future competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology.
- ---------------
* See "Forward-Looking Statements" on page 4.
11
<PAGE> 12
Auspex currently holds fourteen United States patents for certain
fundamental aspects of its FMP data server architecture and has related foreign
patents and foreign patent applications for proprietary Auspex technologies.
The Company's NetServer host processors and network processors operate in
conjunction with software licensed to the Company by Sun Microsystems. Although
the license is perpetual, or automatically renewable unless cancelled, there can
be no assurance that the Company will be able to continue such license renewals
with Sun Microsystems on favorable terms, or at all. The Company also licenses
software and hardware from several other companies and these licenses are also
perpetual unless cancelled or subject to periodic renewal, which cannot be
assured. There can be no assurance that these vendors will continue in business
or that the licenses will continue to be available on favorable terms in the
future, or at all.
EMPLOYEES
As of June 30, 1999, the Company employed 615 people. The recruitment of
experienced, highly-skilled individuals is a top priority in an exceptionally
competitive recruiting environment. Equally important in this environment is the
retention of key talent. The Company has significantly increased its recruiting
activities and is reviewing all employee programs to ensure the retention and
continued development of its employees. Hiring and retaining key employees in
the Silicon Valley employment market has been a challenge, and there can be no
assurance that the Company will be successful in hiring and retaining qualified
employees in the future. None of the Company's employees are represented by a
labor union. The Company believes that its relations with its employees are
good.
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth-certain information with respect to the executive
officers of the Company as of September 13, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce N. Moore(1)........... 48 Chief Executive Officer, President and Chairman
Fred J. Wiele............... 60 Vice President of Marketing
R. Marshall Case............ 41 Vice President of Finance and Chief Financial Officer
Stephen L. Aleshire......... 47 Vice President of Worldwide Sales and Customer Service
John P. Livingston.......... 47 Vice President of Operations
Hans H. Schwarz(2).......... 54 Sr. Vice President of Engineering
R. Stephen Cheheyl(3)(4).... 53 Director
W. Frank King(3)(4)......... 59 Director
</TABLE>
- ---------------
(1) Member of the Stock Option Committee
(2) Employment with Company scheduled to commence on October 1, 1999*
(3) Member of the Audit Committee
(4) Member of the Compensation Committee
Mr. Bruce N. Moore joined the Company in June 1995 as President, Chief
Operating Officer and a member of the Board of Directors. In January 1996, Mr.
Moore assumed the additional role of Chief Executive Officer and relinquished
the role of Chief Operating Officer. Mr. Moore joined Auspex from Diasonics
Ultrasound, Inc., a provider of diagnostic ultrasound equipment, where he held
the position of President and Chief Executive Officer from December 1993 to
December 1994. His eleven-year career at Diasonics included various senior
management positions in marketing and business development. Mr. Moore started
his career as a sales representative in IBM's Data Processing Division in 1976.
- ---------------
* See "Forward-Looking Statements" on page 4.
12
<PAGE> 13
Mr. Fred J. Wiele joined the Company in August 1998 as Vice President of
Marketing. From June 1996 to June 1998, Mr. Wiele served as Senior Vice
President of Sales and Marketing at Komag Corporation, a provider of thin-film
disks. Prior to that, Mr. Wiele was with IBM for 31 years in various senior
sales and marketing capacities, including General Manager and Vice President of
Worldwide Sales and Marketing for the IBM Storage Products Company. Also, during
his tenure at IBM, Mr. Wiele was U.S. Director of Marketing and Support for the
IBM AS/400, and spent 13 years with IBM Europe.
Mr. R. Marshall Case joined the Company in February 1998 as Vice President
of Finance and Chief Financial Officer. From September 1997 to February 1998,
Mr. Case served as Vice President, Finance and Administration at Viking Freight,
Inc., a subsidiary of FDX Corporation, a provider of services. Prior to that,
Mr. Case was Vice President of Financial Planning and Analysis at Amdahl
Corporation, a provider of information technology products, from November 1995
to September 1997. Mr. Case previously served as Executive Vice President,
Martin Marietta Overseas Corporation and held a variety of increasingly
responsible financial management positions while at General Electric Corporation
for 12 years.
Mr. Stephen L. Aleshire joined the Company in November 1997 as Vice
President of Customer Service. In July 1999, Mr. Aleshire assumed the role of
Vice President of Worldwide Sales and Customer Service. From September 1994 to
November 1997, Mr. Aleshire served as Director of Customer Service-American
Operations at Sequent Computer Systems, a provider of high-end scalable
data-center-ready open systems solutions for large organizations. Prior to that,
Mr. Aleshire held a variety of management positions while at Digital Equipment
Corporation for 17 years.
Mr. John P. Livingston joined the Company in April 1999 as Vice President
of Operations. From June 1997 to April 1999, Mr. Livingston served as Vice
President, Engineering and Operations at Electroglas, Inc., a provider of
process management tools to the global semiconductor industry. Prior to that,
Mr. Livingston was Vice President and CIO at Adaptec, Inc., a provider of
bandwidth solutions that enhance total system performance, from April 1994 to
June 1997. Mr. Livingston previously served as Vice President of Quality and
Services at Maxtor, Inc. from July 1990 to April 1994. Prior to that, Mr.
Livingston held the position of Director of Product Support-Service Engineering
at Apple Computer, Inc. from October 1983 to April 1990. Mr. Livingston also
held a variety of management positions while at Texas Instruments for 11 years.
Mr. Hans H. Schwarz will serve as Sr. Vice President of Engineering
commencing on October 1, 1999.* From October 1997 to September 1999, Mr. Schwarz
served as Sr. Vice President and General Manger for IP/Telephony and Enterprise
Data Network business unit of Siemens. Prior to that, Mr. Schwarz was Sr.
Vice-President for Development and Product Management for Siemens Business
Communication, Inc. Mr. Schwarz previously served as Vice President of Hardware
Development at Siemens Rolm from October 1991 to February 1994. Mr. Schwarz also
held a variety of management positions while at Siemens for 18 years.
Mr. R. Stephen Cheheyl has served as a Director of the Company since April
1995. Since he retired in December 1995, Mr. Cheheyl has been a private investor
and independent consultant. From October 1994 until then, Mr. Cheheyl served as
an Executive Vice President of Bay Networks, Inc., which was formed through the
merger of Wellfleet Communications, Inc. ("Wellfleet") and Synoptics
Communications Inc. From December 1990 to October 1994, Mr. Cheheyl served as
Senior Vice President of Finance and Administration at Wellfleet. He also serves
as a director of MCMS, Inc. and Sapient Corporation.
Dr. W. Frank King has served as a Director of the Company since October
1994. Dr. King has been a private investor since October 1998. Prior to that
time, from October 1992 through October 1998, Dr. King served as President,
Chief Executive Officer and a Director of PSW Technologies, Inc., a software
services firm that provides high value solutions to technology vendors and
business end-users by mastering and applying critical emerging technologies.
From 1992 to October 1996, Dr. King served as President of Pencom Software, a
division of Pencom Systems, Inc. From 1988 to 1992, Dr. King was Senior Vice
President of the Software Business group of Lotus, a software publishing
company. Prior to joining Lotus, Dr. King was with IBM, a technology company,
for 19 years, where his last position was Vice President of Development for the
Personal Computing Division. Dr. King earned a doctorate in electrical
engineering from Princeton University,
- ---------------
* See "Forward-Looking Statements" on page 4.
13
<PAGE> 14
a master's degree in electrical engineering from Stanford University and a
bachelor's degree in electrical engineering from the University of Florida. He
also serves on the boards of directors of Best Software, Inc., Excalibur
Technologies Corporation, PSW Technologies, Inc., SystemSoft, Inc., Cortelco
Systems, Inc. and Natural Microsystems, Inc.
ITEM 2. PROPERTIES
The Company is headquartered in Santa Clara, California, where it leases an
aggregate of approximately 269,000 square feet of space which houses
administrative, finance, sales and marketing, manufacturing, customer service
and product development activities. The lease for these facilities expires in
February 2010. In addition, the lease agreement contains three successive
options to extend the lease term for sixty months each. The Company leases
additional sales and support offices located in the United States, Canada, the
United Kingdom, France, Germany and Japan. The Company believes that its
facilities are adequate to meet the Company's current business requirements, and
that suitable additional space will be available as needed to accommodate
further physical expansion of corporate operations and for additional sales and
support offices.* See also Note 5 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings incidental
to the conduct of its business. The Company believes that the litigation,
individually or in the aggregate, to which it is currently a party, is not
likely to have a material adverse effect on the Company's results of operations
or financial condition.*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been approved for quotation on The Nasdaq
National Market under the symbol ASPX since the Company's initial public
offering in May 1993. The following table sets forth, for the periods indicated,
the range of high and low sales prices on the Nasdaq Composite, as reported in
The Wall Street Journal.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Fourth Quarter of 1999...................................... $11.875 $ 7.125
Third Quarter of 1999....................................... $12.50 $ 3.875
Second Quarter of 1999...................................... $ 4.3275 $ 1.6875
First Quarter of 1999....................................... $ 5.125 $ 1.75
Fourth Quarter of 1998...................................... $ 9.25 $ 4.25
Third Quarter of 1998....................................... $10.6875 $ 7.75
Second Quarter of 1998...................................... $12.625 $ 9.1875
First Quarter of 1998....................................... $13.125 $ 7.50
</TABLE>
The Company believes that a number of factors including, but not limited
to, quarterly fluctuations in results of operations may cause the market price
of its common stock to fluctuate significantly. See "Management's Discussion and
Analysis -- Factors That May Affect Future Results."
As of September 13, 1999, the approximate number of common stockholders of
record was 603.
- ---------------
* See "Forward-Looking Statements" on page 4.
14
<PAGE> 15
The Company has not, to date, paid cash dividends on its capital stock. The
Company currently intends to retain earnings for use within its business and
does not anticipate paying cash dividends in the foreseeable future.*
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $113,475 $168,912 $202,486 $162,640 $115,625
Income(loss) before income taxes.... (38,828) (26,668) 24,362 29,597 15,912
Net income (loss)................... (39,045) (17,334) 13,420 19,830 12,411
Net income (loss) per share
Basic............................. $ (1.50) $ (0.69) $ 0.54 $ 0.84 $ 0.54
Diluted........................... $ (1.50) $ (0.69)(1) $ 0.52(2) $ 0.77 $ 0.51
Shares used for net income (loss)
per share
Basic............................. 25,978 25,268 24,641 23,701 23,029
Diluted........................... 25,978 25,268 25,658 25,702 24,371
Total assets.............. $115,048 $147,193 $157,152 $135,844 $106,526
Long-term obligations............... $ 1,304 $ -- $ -- $ -- $ 159
Cash dividends declared per common
share............................. $ -- $ -- $ -- $ -- $ --
</TABLE>
- ---------------
(1) Includes the costs associated with write-down of disk drive inventory to its
net realizable value as a result of rapid price declines of 4-gigabyte disk
drives and restructuring charges. Exclusive of these charges, diluted net
loss per share for fiscal 1998 would have been $0.26.
(2) Includes the write-off of in-process research and development associated
with the acquisition of Alphatronix, Inc. in the fourth quarter of fiscal
1997. Exclusive of this write off, diluted net earnings per share for fiscal
1997 would have been $0.81.
- ---------------
* See "Forward-Looking Statements" on page 4.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the fiscal years indicated the
percentage of total revenues represented by certain line items in the Company's
Statement of Operations:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues.................................................... 100% 100% 100%
Cost of revenues............................................ 58 56 47
--- --- ---
Gross margin................................................ 42 44 53
--- --- ---
Operating Expenses
Marketing and sales....................................... 38 31 23
Research and development.................................. 31 20 12
General and administrative................................ 9 6 4
Restructuring charges..................................... -- 4 --
In-process research and development....................... -- -- 3
--- --- ---
Income (loss) from operations............................. (36) (17) 11
Other income.............................................. 2 1 1
--- --- ---
Income (loss) before income taxes......................... (34) (16) 12
Provision for (benefit from) income taxes................. -- (6) 5
--- --- ---
Net income (loss)......................................... (34)% (10)% 7%
=== === ===
</TABLE>
REVENUES
Product revenue includes hardware sales and software license fees. The
installation of the Company's systems is not considered a significant obligation
and acceptance by the customer is not considered a significant uncertainty.
Revenues from upgrade sales are generally recognized at the time the equipment
is shipped. Provisions for product sales returns and allowances are recorded in
the same period as the related revenue. Revenue earned under software license
agreements with end-users are generally recognized when the software has been
shipped and there are no significant obligations remaining.
Service revenue includes installation, maintenance and training and is
recognized ratably over the contractual period or as the services are provided.
Revenues for the fiscal year ended June 30, 1999 of $113.5 million
decreased 32.8% over fiscal year 1998 revenues of $168.9 million.
The following table sets forth the principal components of the Company's
revenues (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Product revenue............................................ $ 81,737 $142,812 $182,533
Service revenue............................................ 31,738 26,100 19,953
-------- -------- --------
Total revenues................................... $113,475 $168,912 $202,486
======== ======== ========
</TABLE>
Product revenue decreased $61.1 million or 43% in fiscal 1999 as compared
to fiscal 1998, and decreased $39.7 million, or 22% in fiscal 1998 as compared
to fiscal 1997. The fiscal 1999 decrease primarily related to the Company's
focus on new product introductions of its UNIX and Windows NT product lines,
which resulted in delayed customer orders, and increased competitive pressures.
The fiscal 1998 decrease was due to a $30.5 million one-time order from a large
internet service provider in fiscal 1997 and a $10.1 million decrease in revenue
from Japan, which made revenue comparisons difficult, compounded by product
transition issues and increased competitive pressures. Revenue from product
upgrades, which primarily consist of
16
<PAGE> 17
additional processors (or upgrades of existing processors), memory and disk and
tape drives, decreased to 31% of total revenue in fiscal 1999. Revenue from
product upgrades remained relatively stable as a percentage of total revenue in
fiscal 1998. Revenue from product upgrades increased to 43% in fiscal 1997.
The Company provides ongoing support and maintenance to its end-user
customers, distributors and OEMs, generally under annual service agreements.
Service revenue as a percentage of total revenues increased to 28% in fiscal
1999 from 15% in fiscal 1998 and from 10% in fiscal 1997. The increase in
service revenue as a percentage of total revenues was due to the Company's
investment in expanding its Customer Service organization, growth in installed
base and also due to a decline in product revenues.
The following table sets forth the Company's revenue by geographic area (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
North America............................ $ 80,692 71% $116,835 69% $142,536 70%
Pacific Rim.............................. 13,453 12% 23,388 14% 31,759 16%
Europe................................... 19,330 17% 28,689 17% 28,191 14%
-------- --- -------- --- -------- ---
Total revenues................. $113,475 100% $168,912 100% $202,486 100%
======== === ======== === ======== ===
</TABLE>
Revenue from North America decreased $36.1 million in fiscal 1999 compared
to fiscal 1998 and decreased $25.7 million in fiscal 1998 compared to fiscal
1997. The fiscal 1999 decrease primarily related to the timing of new product
introductions and increased competitive pressures. The fiscal 1998 decrease was
due to a $30.5 million one-time order from a large internet service provider in
fiscal 1997. Revenue from the Pacific Rim decreased $9.9 million in fiscal 1999
compared to fiscal 1998 and decreased $8.4 million in fiscal 1998 compared to
fiscal 1997. The decrease in Pacific Rim revenue as a percentage of total
revenue and in absolute dollars in fiscal 1999, 1998 and 1997 was primarily due
to timing of new product introductions, the reorganization of a major OEM
partner and weakness in the Japanese economy.
Sales of products and services to Intel accounted for 20% of total revenues
for the fiscal years ended June 30, 1999 and 1998, respectively, and 10% of
total revenues for the fiscal year ended June 30, 1997. Sales to AOL accounted
for 15% of total revenues for the fiscal year ended June 30, 1997. No other
customer accounted for 10% or more of total revenues for any of the three years
in the period ended June 30, 1999. Intel is not obligated to purchase any
minimum level of products from the Company. Accordingly, there can be no
assurance that sales of products and services to Intel will not decline, either
in absolute dollar amounts or as a percentage of total revenues, in future
periods and that any such declines will not have a material adverse effect on
the Company's results of operations.
GROSS MARGIN
The Company's gross margin was 42%, 44% and 53% in fiscal 1999, 1998 and
1997, respectively. Costs of revenues include material costs, manufacturing and
service overhead costs, installation and warranty expenses, obsolescence, the
cost of spare parts and other related costs. The decrease in gross margins in
fiscal 1999 compared to fiscal 1998 was due to lower prices on systems sales due
to competitive pressures and timing of new product introductions which
contributed to below break-even operations. The decrease in gross margins in
fiscal 1998 compared to fiscal 1997 was primarily due to $9.4 million of charges
incurred for the write-down of disk drive inventory to its net realizable value
as a result of rapid price declines of four-gigabyte drives coupled with an
accelerated transition by the Company to nine-gigabyte drive technology and
product obsolescence.
OPERATING EXPENSES
Marketing and sales expenses decreased $8.6 million in fiscal 1999 compared
to fiscal 1998 and increased $5.9 million in fiscal 1998 compared to fiscal
1997, and were 38%, 31% and 23% of total revenue in fiscal 1999, 1998 and 1997,
respectively. The fiscal 1999 decrease in absolute dollars reflects steps the
Company has taken to streamline operations and reduce overall costs. The
increase as a percentage of total revenues for the comparison periods is a
result of lower revenues in fiscal 1999. The fiscal 1998 increase in absolute
dollars and
17
<PAGE> 18
as a percentage of sales was the result of an expansion of the North American
direct sales operations, the growth of direct sales operations of the Company's
international subsidiaries and lower total revenues in fiscal 1998.
Research and development expenses increased $1.3 million in fiscal 1999
compared to fiscal 1998 and increased $9.6 million in fiscal 1998 compared to
fiscal 1997, and represented 31% and 20% of total revenues in fiscal 1999 and
1998, respectively, and 12% of total revenues in fiscal 1997. The increase in
research and development expenses in fiscal 1999, 1998 and 1997 was primarily
due to new product development efforts. The Company believes that in order to
remain competitive, it will need to continue to make substantial investments in
new and enhanced products.
General and administrative expenses increased $1.4 million in fiscal 1999
compared to fiscal 1998, and increased $1.4 million in fiscal 1998, compared to
fiscal 1997. Such expenses represented approximately 9% of total revenue in
fiscal 1999, and 6% and 4% of total revenues in fiscal 1998 and 1997,
respectively. General and administrative expenses increased in absolute dollars
in fiscal 1999 and 1998 compared to fiscal 1997 primarily due to the cost of
expanding new facilities occupied in February 1998.
In the fourth quarter of fiscal 1998, the Company recorded a $7.3 million
restructuring charge to cover the planned costs of reducing certain sectors of
its workforce, scaling back its facilities and writing-down equipment and other
assets. These charges reflect steps the Company has taken to improve its product
development efforts, streamline operations and reduce overall costs.
On June 30, 1997, the Company acquired all of the outstanding shares of
Alphatronix for a total purchase price of $7.7 million. The acquisition was
accounted for using the purchase method of accounting. A portion of the purchase
price was allocated to assets acquired and liabilities assumed based on their
estimated fair value. The fair value of tangible assets acquired and liabilities
assumed was $300,000 and $300,000, respectively. In addition, $7.4 million of
the purchase price was allocated to in-process research and development projects
that had not reached technological feasibility and had no probable alternative
future uses, which the Company expensed in fiscal 1997 as a non-recurring
charge. The remainder of the purchase price, $300,000, was allocated to goodwill
and is being amortized over five years on a straight-line basis. See Note 3 of
Notes to the Consolidated Financial Statements. Alphatronix's R&D projects
relate primarily to developing a suite of network data management software
applications. There can be no assurance that the Company will succeed in making
commercially viable products from the Alphatronix research and development.
OTHER INCOME
Other income and expense resulted in income of $2.0 million, $1.7 million
and $2.4 million in fiscal 1999, 1998 and 1997 respectively. Other income and
expense includes interest income, interest expense and foreign exchange gains
and losses. Interest income was $2.0 million, $2.4 million and $2.3 million in
fiscal 1999, 1998 and 1997 respectively.
PROVISION FOR INCOME TAXES
As of June 30, 1999, the Company had gross deferred tax assets of
approximately $13.6 million. Management has determined, based on the Company's
history of prior operating earnings, the ability to carry back net operating
losses to prior periods and its expectations for future years, that it is more
likely than not that the deferred tax asset is not realizable.* No assurances
can be given that sufficient taxable income will be generated in future years
for the utilization of the deferred tax asset. Accordingly, the Company has
provided a valuation allowance for the entire deferred tax asset as of June 30,
1999.
The Company's income tax rate for fiscal 1999 was 0% compared with income
tax benefit rate of 35% for fiscal 1998. The Company recognized a tax benefit of
approximately $9.3 million for fiscal 1998, due to the carryback of current net
operating losses to prior periods. The provision for income taxes was
approximately $10.9 million in fiscal 1997 representing effective tax rate of
approximately 45%. The effective tax rate in
- ---------------
* See "Forward-Looking Statements" on page 4.
18
<PAGE> 19
fiscal 1997 was higher than the statutory rate due to the fact that the Company
had not provided any tax benefits related to the write-off of in-process
research and development expenses of approximately $7.4 million resulting from
the acquisition of Alphatronix in fiscal 1997. Excluding the write-off of
in-process research and development expenses, which accounts for an increase of
10.5% in the effective tax rate in fiscal 1997, the Company's effective tax rate
would have been 34.5%.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly financial
information for the Company's last eight quarters. This unaudited information
has been prepared on the same basis as the audited information and in
management's opinion reflects all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the information
for the periods presented. Based on the Company's operating history and factors
that may cause fluctuations in the quarterly results, quarter-to-quarter
comparisons should not be relied upon as indicators of future performance.
Although the Company's revenues are not generally seasonal in nature, the
Company has experienced decreases in first quarter revenue versus the preceding
fourth quarter which are believed to result primarily from the capital asset
purchase cycle of the Company's customers.
The level of the Company's operating expenses is partially based on its
expectations of future revenue. The Company's results of operations may be
adversely affected if revenue does not materialize in a period as expected.
Since expense levels are usually committed in advance of revenue and because
only a small portion of expenses vary with revenue, the Company's results of
operations may be impacted significantly by lower revenue. The Company's revenue
was lower each quarter in fiscal 1999 compared to the corresponding quarter in
the prior year. This decrease was due principally to lower sales volume and
lower average selling prices of the Company's products as a result of product
transition issues, which resulted in delayed orders from customers, and
increased competitive pressures.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1999 SUMMARY BY QUARTER
Revenues....................... $30,057 $ 30,564 $ 26,769 $ 26,085 $113,475
Gross margin................... 13,920 12,754 11,184 9,823 47,681
Loss before taxes.............. (6,745) (7,792) (10,891) (13,400) (38,828)
Net loss....................... (6,789) (7,815) (10,931) (13,510) (39,045)
Net loss per share
Basic........................ $ (.26) $ (.30) $ (.41) $ (.51) $ (1.50)
Diluted...................... $ (.26) $ (.30) $ (.41) $ (.51) $ (1.50)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1998 SUMMARY BY QUARTER
Revenues....................... $48,588 $ 43,442 $ 40,386 $ 36,496 $168,912
Gross margin................... 24,608 11,830 20,524 16,526 73,488
Income (loss) before taxes..... 2,756 (11,668) (3,578) (14,178) (26,668)
Net income (loss).............. 1,791 (7,584) (2,326) (9,215) (17,334)
Net income (loss) per share
Basic........................ $ 0.07 $ (0.30) $ (0.09) $ (0.36) $ (0.69)
Diluted...................... $ 0.07 $ (0.30)(1) $ (0.09) $ (0.36)(2) $ (0.69)(3)
</TABLE>
- ---------------
(1) Includes the costs associated with write-down of disk drive inventory to its
net realizable value as a result of rapid price declines of 4-gigabyte disk
drive of $9,389,000. Exclusive of this charge, net diluted loss per share
for second quarter 1998 would have been $0.06.
(2) Includes the costs associated with restructuring charges of $7,349,000.
Exclusive of this charge, net diluted loss per share for fourth quarter 1998
would have been $0.17.
19
<PAGE> 20
(3) Includes the costs associated with write-down of disk drive inventory to its
net realizable value as a result of rapid price declines of 4-gigabyte disk
drives and restructuring charges. Exclusive of these charges, net diluted
loss per share for fiscal 1998 would have been $0.26.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments decreased
$8.1 million as of June 30, 1999, compared to June 30, 1998. The Company used
cash of approximately $6.6 million in operating activities in fiscal 1999. The
Company generated cash of approximately $14.6 million and $28.4 million in cash
from operating activities in fiscal 1998 and 1997, respectively. The decrease in
net cash from operating activities in each of fiscal 1999 and 1998 was primarily
due to the Company's net loss for the respective years.
The Company's principal investing activities consisted of the purchase of
property and equipment amounting to $15.2 million, $28.9 million and $16.4
million in fiscal 1999, 1998 and 1997, respectively. These expenditures were for
leasehold improvements, equipment for research and development, manufacturing
test equipment, office equipment and spare parts to support customer service
contracts. Additionally, the Company disbursed $17.2 million in connection with
capital expenditures and leasehold improvements for a new facility, which it
occupied in February 1998. Purchases of short-term investments represent
reinvestment of the proceeds from sale and maturities of short-term investments
and investment of cash and cash equivalents into short-term investments. The
Company also used net cash of $5.6 million for the acquisition of Alphatronix in
fiscal 1997.
The Company's primary financing activities included proceeds from the sale
of its Common Stock pursuant to employee benefit plans of $3.1 million, $4.3
million and $4.1 million in fiscal 1999, 1998 and 1997, respectively. During
fiscal 1999, the Company also generated approximately $10.9 million in proceeds
from sale and leaseback of furniture, fixtures and computer equipment.
At June 30, 1999, the Company's principal sources of liquidity included
$42.6 million in cash, cash equivalents and short-term investments and $15.0
million available under a secured United States currency bank line of credit,
expiring October 1, 2000. At June 30, 1999, the Company had no outstanding
balance under this line of credit.
As of June 30, 1999, working capital was $49.3 million as compared with
$79.4 million as of June 30, 1998. Based on its current operating plans, the
Company believes that its existing cash, cash equivalents and short-term
investments and cash flow from operations will be sufficient to meet its working
capital and capital expenditures requirements at least through the next 12
months.*
FACTORS THAT MAY AFFECT FUTURE RESULTS
Potential Significant Fluctuations in Quarterly Results
The Company's operating results may fluctuate significantly from quarter to
quarter due to a combination of factors. These factors include the timing of
orders, the timing of new product introductions by the Company or its
competitors, and the mix of distribution channels through which the Company's
products are sold. The Company generally realizes higher gross margins on sales
of systems to end users and on single-system sales than on systems sold through
distributors and OEMs and on multiple-system sales. In addition, given the
Company's focus on highly configured enterprise class systems, the loss or delay
in a given quarter of a relatively limited number of system sales could
adversely affect the Company's revenues. Historically, the Company often has
recognized a substantial portion of its revenues in the last month of any given
quarter. Because the Company's operating expenses are based on anticipated
revenue levels and because a high percentage of the Company's expenses are
relatively fixed, a small variation in the timing of the recognition of revenues
could cause significant variations in operating results from quarter to quarter.
- ---------------
* See "Forward-Looking Statements" on page 4.
20
<PAGE> 21
Competitive Market
The market for the Company's products is highly competitive. The Company
experiences substantial competition, principally from Sun Microsystems, Network
Appliance, EMC Corporation, Hewlett-Packard Company and SGI, among others. Some
companies have introduced proprietary products to provide network attached
storage. Most of the Company's competitors are better known and have
substantially greater financial, technological, production and marketing
resources than the Company. While the Company believes that the
price/performance characteristics of its products are competitive, price
competition in the markets for the Company's products is intense. Any material
reduction in the price of the Company's products without corresponding decreases
in manufacturing costs and increases in unit volume would negatively affect
gross margins, which could in turn have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
also derives a significant portion of its revenues from sales of product
upgrades to its installed base of customers, including additional processors,
memory and disk. Increased competition for the Company's products that results
in lower product sales could also adversely impact the Company's upgrades sales.
In addition, decisions by customers not to increase capacity to their current
systems could adversely impact the Company's revenues and results of operations.
The Company's ability to maintain its competitive position will depend upon,
among other factors, its success in anticipating industry trends, investing in
product research and development, developing new products with improved price/
performance characteristics and effectively managing the introduction of new
products into targeted markets.
Dependence on Key Personnel
Competition for employees with technical, management and other skills is
intense in the computer industry and is particularly intense in the San
Francisco Bay Area. The Company has recently encountered some difficulties in
fulfilling its hiring needs and retaining key employees in this employment
market, and there can be no assurance that the Company will be successful in
hiring and retaining qualified employees in the future. The Company's failure to
retain the services of key personnel or to attract additional qualified
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.
Software Product Risks
The Company markets optional software products in addition to its line of
network file servers. These software products include: NeTservices(TM),
DriveGuard(TM), FastBackup(TM), ServerGuard(TM), ServerGuard Global(TM) and
DataGuard(TM). The Company also expects to release enhancements and new features
for these products from time to time.* Although the Company performs extensive
testing prior to releasing software products, such products may contain
undetected errors or bugs when first released. These may not be discovered until
the product has been used by customers in different application environments.
Failure to discover product deficiencies or bugs could delay product
introductions, require design modifications to previously shipped products,
cause unfavorable publicity or negatively impact system shipments; any of which
could result in a materially adverse effect on the Company's business, financial
condition and results of operations.
New Products
New product introductions by the Company or its competitors carry the risk
that customers could delay or cancel orders for existing products pending
shipment of the new products. For instance, product transition issues had an
adverse impact on North America, Europe and Pacific Rim revenue in fiscal 1999.
The Company's strategy is to continue to introduce new products and upgrades to
existing products on an ongoing basis. There can be no assurance that the
Company will not experience difficulties that delay or prevent the successful
development, introduction or marketing of these products and enhancements or
that these new products and enhancements will adequately address market
requirements, achieve market acceptance or generate substantial sales.
Additionally, delays in the launch or lack of availability of new products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
- ---------------
* See " Forward-Looking Statements" on page 4.
21
<PAGE> 22
Dependence on Established Standards
The rapid emergence of new or alternate standards, such as Windows NT and
Linux, which replace or diminish the market acceptance of UNIX operating systems
or NFS, on which the Company's products are currently based, could materially
and adversely affect the Company's results of operations unless the Company is
able to incorporate any such standards in the Company's products in a timely
manner.
Dependence on Certain Customers/Distributors
For each of fiscal 1999, 1998 and 1997, direct sales of products and
services to Intel represented approximately 20%, 20% and 10%, respectively, of
the Company's revenues. Also in fiscal 1997, direct sales of products and
services to AOL represented approximately 15% of the Company's revenues. Intel
and AOL are not obligated to purchase any minimum level of products from the
Company. Additional significant reductions in product sales to Intel or AOL
would materially and adversely affect the Company's business, financial
condition and results of operations. For example, the reduced purchases by AOL
contributed to lower revenue in fiscal 1999 and 1998.
Dependence on Certain Suppliers
Certain of the Company's products contain critical components supplied by a
single or limited number of third parties. While the Company has an inventory of
these critical components, any significant or prolonged shortage of these
components or the failure of the third-party suppliers to maintain or enhance
these components could materially and adversely affect the Company's results of
operations.
Excess or Obsolete Inventory
Managing the Company's inventory of components and finished products is a
complex task. A number of factors, including but not limited to, the need to
maintain a significant inventory of certain components which are in short supply
or which must be purchased in bulk to obtain favorable pricing, the general
unpredictability of demand for specific products and customer requests for quick
delivery schedules, may result in the Company maintaining large amounts of
inventory. Other factors, including changes in market demand and technology, may
cause inventory to become obsolete. Any excess or obsolete inventory could
result in price reductions and/or inventory write-downs, which in turn could
adversely affect the Company's business and results of operations.
Risks of International Sales; European and Japanese Market Risks
During fiscal 1999 and 1998, approximately 29% and 31%, respectively, of
the Company's total revenues were derived from markets outside of North America.
The Company expects that sales to the Pacific Rim and Europe will continue to
represent a significant portion of its business.* However, there can be no
assurance that the Company's Pacific Rim or European operations will continue to
be successful.
The Company's international business may be affected by changes in demand
resulting from localized economic and market conditions. For example, the
Company experienced a decrease in revenues from the Pacific Rim during fiscal
1999 due to further weakness in the Japanese economy and effects from continuing
organizational change at one of the Company's major Japanese distributors. In
addition, the Company's international business may be affected by fluctuations
in currency exchange rates and currency restrictions. The Company purchases the
majority of its materials and services in U.S. dollars, and most of its foreign
sales are transacted in U.S. dollars. Continued increases in the value of the
U.S. dollar relative to foreign currencies will make the Company's products sold
internationally less price competitive. The Company has offices in a number of
foreign countries, the operating expenses of which are also subject to the
effects of fluctuations in foreign exchange rates. Financial exposure may result
due to the timing of transactions and movement of exchange rates. The Company's
international business may further be affected by risks such as trade
- ---------------
* See "Forward-Looking Statements" on page 4.
22
<PAGE> 23
restrictions, increases in tariff and freight rates and difficulties in
obtaining necessary export licenses and meeting appropriate local regulatory
standards. For example, the Company has had to modify its products in minor
respects in Japan to comply with local electromagnetic emissions standards, and
must also comply with corresponding European Economic Community standards. In
marketing its products to the European Economic Community, the Company also must
face the challenges posed by a fragmented market complicated by local
distribution channels and local cultural considerations. For international
sales, the Company has largely relied on distributors or OEMs, most of who are
entitled to carry products of the Company's competitors. There can be no
assurance that any of the foregoing risks or issues will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Stock Market Fluctuations
In recent years, the stock market in general and the market for technology
stocks in particular, including the Company's Common Stock, have experienced
extreme price fluctuations. The market price of the Company's Common Stock may
be significantly affected by various factors such as quarterly variations in the
Company's operating results, changes in revenue growth rates for the Company as
a whole or for specific geographic areas or products, changes in earning
estimates by market analysts, the announcements of new products or product
enhancements by the Company or its competitors, speculation in the press or
analyst community, and general market conditions or market conditions specific
to particular industries. There can be no assurance that the market price of the
Company's Common Stock will not experience significant fluctuations in the
future.
Intellectual Property and Proprietary Rights
The Company currently relies on a combination of patent, copyright,
trademark and trade secret laws and contractual provisions to protect its
proprietary rights in its hardware and software products. The Company currently
holds fourteen United States patents and has filed applications for additional
patents. The Company also has filed applications for counterpart patents in
foreign countries, including Japan. There can be no assurance that the Company's
present or future competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology. Further,
there can be no assurance that the Company's patent applications will result in
issued patents, or that the Company's issued patents will be upheld if
challenged. Additionally, there can be no assurance that third parties will not
assert intellectual property infringement claims against the Company in the
future with respect to current or future projects or that any such assertions
may not require the Company to refrain from the sale of its products, enter into
royalty arrangements or undertake costly litigation.
The Company's adherence to industry standards with respect to its products
limits the Company's opportunities to provide proprietary features, which may be
protected. In addition, the laws of various countries in which the Company's
products may be sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The Year 2000 problem is
pervasive and complex, as virtually every computer operation will be affected in
some way by the rollover of the two-digit year value to "00". Systems that do
not properly recognize date-sensitive information when the year changes to 2000
could generate erroneous data or cause a system to fail. Significant uncertainty
exists in the software industry concerning the potential effects associated with
the Year 2000 problem. The Company's new products, as of fiscal 1998, are being
designed to be Year 2000 compliant (as the Company has defined that term in its
published statements). However, some of the Company's older products will not be
Year 2000 compliant and, as a result, the Company's customers will be required
to upgrade these products. Although products have undergone, or will undergo,
the Company's normal quality testing procedures, there can be no assurance that
the Company's products will
23
<PAGE> 24
contain all necessary date code changes.* Any failure of the Company's products
to perform, including system malfunctions due to the onset of Year 2000, could
result in claims against the Company, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, the Company's customers could choose to convert to other Year 2000
compliant products or to develop their own products in order to avoid such
malfunctions, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company currently is in the process of auditing its own information
technology infrastructure for Year 2000 compliance, including reviewing what
actions are required to make all software systems Year 2000 compliant as well as
actions needed to mitigate the risks of Year 2000. Such actions include a review
of vendors' contracts, attention to Year 2000 issues in future contracts with
vendors and formal communications with suppliers requesting that they certify
that their products are Year 2000 compliant.
State of Readiness
The Company has been actively addressing the Year 2000 issues since fiscal
1997. The following sections broadly address Year 2000 matters with respect to
the Company's (a) suppliers, (b) facilities and infrastructure, (c) information
technology systems, (d) engineering infrastructure, and (e) manufacturing
operation Year 2000 compliance assessment.
Suppliers
During fiscal year 1998 the Company sent out a Year 2000 Readiness
Letter/Questionnaire to its supply chain. 98% of the supply chain contacted has
responded to the inquiries and all responding have indicated they are, or will
be, fully compliant by December 31, l999. The outstanding suppliers still
needing to respond are actively being solicited for their position. This
activity should be completed by September 30, 1999. Any suppliers responding in
the negative will be placed in a probationary status and, wherever possible, an
alternate source of supply who meet the Year 2000 requirements, identified and
qualified.* There can be no assurance that the Company will be able to find
suitable alternate suppliers and contract with them on reasonable terms, or at
all, and such inability could have a material and adverse impact on the
Company's business and results of operations.
Facilities and Infrastructure
The Company's new headquarters facility in Santa Clara and domestic remote
sites are believed to be Year 2000 compliant with respect to building automation
systems, electronic security systems and utilities. The Company has presented
formal queries to local fire departments with regard to Year 2000 compliance/
readiness. Formal responses have not been received as of this filing. The
Company believes that its English, French, German and Japanese facilities are
Year 2000 compliant.
Information Technology Systems
Over the past several years, the Company has invested in a number of Year
2000 compliant PBX and voice-mail systems. No effort has been spent on verifying
Year 2000 compliance of local telephone systems of most sales offices and the
Company does not expect to have verified such compliance as the Company believes
that there will be no Year 2000 problem with the local telephone systems of the
sales offices.*
The Company believes that its internal production data communication
network is Year 2000 compliant. A majority of the key components, which the
Company believes to be Year 2000 compliant, of the network were installed within
the past fiscal year. The Company's wide-area network requirements are provided
by a major national and international carrier. The Company believes there is
some uncertainty between these carriers due to the fact testing between carriers
cannot commence until each carrier is Year 2000 compliant. No significant effort
has been spent on verifying Year 2000 compliance for local services that are
provided by local carriers and the Company does not expect to have verified such
compliance as the Company believes, more likely than not, there is no
significant uncertainty.
- ---------------
* See "Forward-Looking Statements" on page 4.
24
<PAGE> 25
The Company has replaced or upgraded, or is in the process of
replacing/upgrading, many of its core applications systems. A new Year 2000
compliant enterprise resource planning package was installed in the first
calendar quarter of 1998. An upgrade to a newer version of this package was
completed during the fourth calendar quarter of 1998 which incorporates several
Year 2000 compliance -- related bug fixes. The upgrade to a newer version of the
Company's payroll and human resources systems to Year 2000 compliant systems was
completed during September 1998. The Company's customer call tracking system is
being upgraded to provide additional functionality and stability and the Company
will complete such upgrade during September 1999.* During fiscal 1998, the
Company invested in a desktop upgrade program. Vendors have affirmed that the
standard personal computers and laptop computing installed during 1998 are Year
2000 compliant. Testing has confirmed that commonly used functions operate
satisfactorily.*
Engineering Infrastructure
The Company's engineering infrastructure is in a continual state of change
due to the dynamic nature of the Company's business and focus on new products.
As older products are retired and new products developed, the tools, equipment
and laboratory environments change. The Company completed the assessment of year
2000 issues of its engineering infrastructure during the fourth calendar quarter
of 1998 and has resolved all significant issues. Testing has affirmed that
commonly used functions operate satisfactorily.*
Manufacturing Operations
The Company is primarily an assemble-to-order manufacturing operation.
There is no significant automated assembly equipment on its manufacturing shop
floor. The company completed the assessment of Year 2000 issues of its
manufacturing operations during the fourth calendar quarter of 1998 and has
resolved all significant issues. Testing has affirmed that commonly used
functions operate satisfactorily.*
Costs to Address Year 2000 Issues
The Company expects to incur total software-, hardware- and systems-related
costs of approximately $1.9 million and solutions providers' costs of
approximately $500,000 in connection with remediations of Year 2000 compliance
issues, in addition to incurring payroll costs for our Information Technology
staff.* There can be no assurance that the cost estimates associated with the
Company's Year 2000 issues will prove to be accurate or that the actual costs
will not have a material adverse effect on the Company's results of operations
and financial condition.
Year 2000 Issues
The Company's Technical Support representatives work closely with customers
to resolve problems, issues and questions. The Company's Customer Service
organization uses several toll free phone numbers to address customer problems,
issues and questions. These calls are logged and tracked using a call management
system. Customer Service has a significant reliance on communications,
voice-mail, email, paging, Web and file transfer program services and data
communications. Given the number and variety of suppliers and their
inter-dependencies, the number and location of worldwide customers and the
number and locations of the various Technical Support offices, it is not
feasible to fully test whether the Company will be able to guarantee that each
customer will be able to contact and/or do business with Customer Service
without disruption on or about the beginning of 2000. The Company expects an
increase in calls on or about the beginning of Year 2000, which will likely
impact Customer Service responsiveness.
Contingency Plans
The Company has completed the preparation of general contingency plans,
which includes adequate staffing requirements to handle all inquiries, for the
Year 2000 compliance issues areas noted above. There can be no assurance that
such measures will prevent the occurrence of Year 2000 problems, which could
have a material adverse effect upon the Company's business, operating results
and financial condition.
25
<PAGE> 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company
invests in high-credit quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. As stated in its policy, the Company ensures
the safety and preservation of its invested principal funds by limiting default
risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in safe and high-credit
quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer, guarantor or depository. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Company's investment portfolio.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------- ----- ---- ---- ---- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash equivalents and short-term
investments
Fixed rate investments............... $28,126 $ 990 -- -- -- -- $29,116
Average interest rate................ 5.04% 5.57% -- -- -- -- 5.07%
</TABLE>
Foreign Currency Exchange Risk
The Company transacts business in various foreign countries. Its primary
foreign currency cash flows are in certain European countries. During fiscal
1999, 1998 and 1997, the Company employed a foreign currency-hedging program
utilizing foreign currency forward exchange contracts to hedge local currency
cash flows for payroll and other operating expenditures in these European
countries. Under this program, increases or decreases in the Company's local
currency operating expenses and other cash outflows, as translated into U.S.
dollars, are partially offset by realized gains and losses on the hedging
instruments. The goal of this hedging program is to economically guarantee or
lock in the exchange rates on the Company's foreign currency cash outflows
rather than to eliminate the possibility of short-term earnings volatility. As
of June 30, 1999, the Company's foreign currency forward exchange contracts were
comprised of $4.8 million in British Pounds and $1.3 million in German Marks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are incorporated by
reference from Part IV Item 14(a) 1 and 2 hereof. The selected quarterly
supplementary data is included as part of Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Annual Report
on Form 10-K because the Registrant will file a definitive proxy statement
within one hundred twenty (120) days after the end of its fiscal year pursuant
to Regulation 14A (the "Proxy Statement") for its Annual Meeting of Stockholders
currently scheduled for November 18, 1999, and the information included in the
Proxy Statement is incorporated herein by reference.
26
<PAGE> 27
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated by
reference to the information under the heading "Election of Directors" in the
Registrant's Proxy Statement.
Information regarding the executive officers of the Company is incorporated
by reference to the section of Part I of this Annual Report on Form 10-K
entitled "Item 1 -- Business -- Executive Officers of the Company".
Information regarding compliance with Section 16 of the Securities Exchange
Act of 1934, as amended, is incorporated by reference to the information under
the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Registrant's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of executive officers and directors
of the Company is incorporated by reference to the information under the heading
"Executive Compensation" and "Certain Transactions with Management" in the
Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the information under the heading "Security
Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the information under the caption "Certain
Transactions with Management" in the Registrant's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on
Form 10-K.
The following consolidated financial statements of Auspex Systems, Inc. are
filed as part of this Annual Report on Form 10-K.
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... 32
Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997.............................. 33
Consolidated Statements of Comprehensive Income for years
ended June 30, 1999, 1998 and 1997........................ 34
Consolidated Balance Sheets as of June 30, 1999 and 1998.... 35
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1999, 1998 and 1997.................. 36
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997.............................. 37
Notes to Consolidated Financial Statements.................. 38
</TABLE>
27
<PAGE> 28
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules for each of the
three years in the period ending June 30, 1999, 1998 and 1997 are submitted
herewith:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and
Reserves.................................................. 48
</TABLE>
(All other schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or notes thereto.)
3. EXHIBITS
The following exhibits are included in this Annual Report on Form 10-K
(numbered in accordance with Item 601 of Regulation S-K):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1(1) Certificate of Incorporation of Registrant as amended and
restated to date.
3.2(1) By-laws of Registrant as amended to date.
4.1(2) Preferred Shares Rights Agreement between the Registrant and
The First National Bank of Boston as Rights Agent dated
April 19, 1995.
10.1(1)(3) 1988 Stock Option Plan and forms of Incentive Stock Option
Agreements and Nonstatutory Stock Option Agreements, as
amended to date.
10.2(1)(3)(4) 1993 Directors' Stock Option Plan and forms of Option
Agreements, as amended to date.
10.3(1)(3)(4) 1993 Employee Stock Purchase Plan and forms of Agreements,
as amended to date.
10.4(1)(3) 401(k) Plan, as amended to date.
10.5(1)(3) Summary of Executive Bonus Program.
10.6(1)(3) Form of Directors' and Officers' Indemnification Agreement
with all of its Directors and Officers.
10.9(1)(5) OEM Agreement dated March 9, 1993 between the Registrant and
Fuji Xerox Company, Ltd.
10.10(A)(1)(5) Distributor Agreement dated June 6, 1990 between the
Registrant and Nissho Electronics Corporation.
10.10(B)(5) Distributor Agreement dated June 6, 1990 between the
Registrant and Nissho Electronics Corporation, as amended on
July 29, 1997.
10.11(1)(5) Agreement between the Registrant and Solectron Corporation
dated May 20, 1991, as amended on November 18, 1992.
10.12(1) U.S. OEM Discount Agreement between the Registrant and Sun
Microsystems, Inc. effective as of August 18, 1988, as
amended by Addendum dated September 8, 1988 and Addendum
dated September 14, 1989.
10.13(1) Source Code License between the Registrant and Sun
Microsystems, Inc. dated August 31, 1988, as amended on
April 30, 1991, February 11, 1992 and March 18, 1992.
10.14(1) NFS Software Agreement between the Registrant and Sun
Microsystems, Inc. dated September 29, 1988.
10.15(6)(7) Software Agreement between the Registrant and AT&T
Information Systems Inc. dated June 2, 1988, as amended by
Supplement Number 1, Supplement Number 2 dated August 5,
1988 and Supplement Number 3 dated August 10, 1990, as
amended on June 28, 1993.
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16(6)(7) Sublicensing Agreement between the Registrant and AT&T
Information Systems Inc. dated August 30, 1988, as amended
on June 28, 1993.
10.17(1) Software Agreement between the Registrant and UNIX System
Laboratories, Inc. dated April 29, 1992.
10.18(1) License Agreement with the Regents of the University of
California dated June 9, 1988, as amended by Addendum dated
October 21, 1988.
10.19(8)(9) Intel Corporation Purchase Agreement between Intel
Corporation and the Registrant dated March 22, 1994.
10.20(10) Warranty and Service Provider Agreement between the
Registrant and AT&T Global Information Systems dated April
15, 1994.
10.21(10) SunSoft Technology License and Distribution Agreement
between the Registrant and SunSoft, Inc. dated December 17,
1993.
10.23(10) Amendment No. 2 to Lease Agreement between the Registrant
and WHC-SIX Real Estate dated February 28, 1996.
10.24(10) Interactive SPARC Software and Sublicensing Agreement
between Auspex Systems, Inc. and Interactive systems
Corporation, dated November 15, 1991.
10.25(11) Lease Agreement by and Between South Bay/San Tomas
Associates and Auspex Systems, Inc. dated January 14, 1997,
for 2800 Scott Boulevard, Santa Clara facility.
10.26(11) Lease Agreement by and Between South Bay/San Tomas
Associates and Auspex Systems, Inc. dated January 14, 1997,
for 2300, 2320, 2330 Central Expressway, Santa Clara
facility.
10.27(3)(12) 1997 Stock Option Plan and Forms of Incentive Stock Option
Agreements and Nonstatutory Stock Option Agreements, as
amended to date.
10.28(3) 1998 Non-Statutory Stock Plan and Form of Option Agreements.
10.29(13) Form of Change of Control Severance Agreement, filed on May
12, 1999.
10.30 Form of Change of Control Severance Agreement entered into
the form of the Company and Bruce N. Moore, President and
Chief Executive Officer, dated June 16, 1999.
10.31 Software Support Agreement between the Registrant and AT&T
dated July 10, 1997.
10.32 Software Licensing Agreement between the Registrant and AT&T
Corporation dated June 3, 1997, as amended on September 14,
1998.
10.33 Source License Agreement between the Registrant and
Programmed Logic Corp. dated July 1, 1998; Bundled Hardware
OEM Binary License Agreement between the Registrant and
Programmed Logic Corp. dated July 1, 1998; Read-Only License
Agreement between the Registrant and Programmed Logic Corp.
dated July 1, 1998.
10.34 Master Value Added Distribution Agreement between the
Registrant and Fuji Xerox Co. Ltd. dated May 21, 1997.
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24.1 Power of Attorney (See Page 31).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Registrant's Registration Statement on Form S-1, as
amended (File No. 33-60052), which was declared effective on May 11, 1993.
29
<PAGE> 30
(2) Incorporated by reference to Exhibit 1 filed in connection with the
Registrant's Form 8-A which was filed on April 20, 1995.
(3) Designates management contract or compensatory plan arrangements required
to be filed as an exhibit of this Annual Report on Form 10-K pursuant to
Item 14(c).
(4) Incorporated by reference to exhibits filed in connection with Registrants'
Proxy Statement for the 1997 Annual Meeting of Stockholders, which was
filed on October 14, 1997.
(5) Confidential treatment granted by order effective May 11, 1993.
(6) Incorporated by reference to identically numbered exhibits filed in
connection with Registrant's Form 10-K for the fiscal year ended June 25,
1993 (File No. 33-60052).
(7) Confidential treatment granted by order effective January 14, 1994.
(8) Incorporated by reference to Exhibit 10.1 filed in connection with
Registrant's Form 10-Q for the quarter ended March 31, 1994 (File No.
0-21432), which was filed on May 16, 1994.
(9) Confidential treatment granted by order effective July 7, 1994.
(10) Incorporated by reference to exhibits filed in connection with the
Registrant's Form 10-K for the fiscal year ended June 30, 1994 (File No.
0-21432), which was filed on September 28, 1994 and confidential treatment
granted by order effective December 5, 1994.
(11) Incorporated by reference to exhibits filed in connection with Registrant's
Form 10-K for the fiscal year ended June 30, 1997 (File No. 0-21432), which
was filed on September 24, 1997.
(12) Incorporated by reference to exhibits filed in connection with Registrants'
Proxy Statement for the Special Meeting of Stockholders held on April 23,
1998 which was filed on March 20, 1998.
(13) Incorporated by reference to exhibits in connection with Registrant's Form
10-Q for the quarter ended March 31, 1999, which was filed on May 12, 1999,
Form of Change of Control Severance Agreement entered into the form of the
Company and each of:
-- Steve Aleshire, Vice President of World Wide Customer Services
-- R. Marshall Case, Vice President of Finance and Chief Financial
Officer
-- John S. Coviello, Vice President of Research and Development
-- Dorothy Krier, Vice President of Human Resources
-- John P. Livingston, Vice President of Operations
-- Fred J. Wiele, Vice President of Marketing, dated November 25, 1998
30
<PAGE> 31
(B) REPORTS ON FORM 8-K:
No report on Report Form 8-K was filed during the last quarter of the
fiscal year ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AUSPEX SYSTEMS, INC.
Date: September 24, 1999 By: /s/ BRUCE N. MOORE
------------------------------------
Bruce N. Moore
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bruce N. Moore and R. Marshall Case,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of these
attorneys-in-fact, or his or her substitute or substitutes may do, or cause to
be done, by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ BRUCE N. MOORE President and Chief Executive Officer and September 24, 1999
- ------------------------------------ Director (Principal Executive Officer)
(Bruce N. Moore)
/s/ R. MARSHALL CASE Vice President of Finance and Chief Financial September 24, 1999
- ------------------------------------ Officer (Principal Financial and Principal
(R. Marshall Case) Accounting Officer)
/s/ R. STEPHEN CHEHEYL Director September 24, 1999
- ------------------------------------
(R. Stephen Cheheyl)
/s/ W. FRANK KING Director September 24, 1999
- ------------------------------------
(W. Frank King)
</TABLE>
31
<PAGE> 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Auspex Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Auspex
Systems, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1999 and
1998, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended June 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Auspex Systems, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements, and in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
July 23, 1999
32
<PAGE> 33
AUSPEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------
JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Product revenue.................................... $ 81,737 $142,812 $182,533
Service revenue.................................... 31,738 26,100 19,953
-------- -------- --------
Total revenues............................. 113,475 168,912 202,486
-------- -------- --------
Cost of Revenues
Cost of product revenue............................ 42,196 74,407 79,062
Cost of service revenue............................ 23,598 21,017 16,420
-------- -------- --------
Total cost of revenues..................... 65,794 95,424 95,482
-------- -------- --------
Gross margin....................................... 47,681 73,488 107,004
-------- -------- --------
Operating Expenses
Marketing and sales................................ 42,808 51,438 45,573
Research and development........................... 35,272 34,000 24,449
General and administrative......................... 10,466 9,110 7,672
Restructuring charges.............................. -- 7,349 --
In-process research and development................ -- -- 7,354
-------- -------- --------
Total operating expenses................... 88,546 101,897 85,048
-------- -------- --------
Income (loss) from operations...................... (40,865) (28,409) 21,956
-------- -------- --------
Other Income
Interest income.................................... 2,039 2,430 2,265
Interest expense................................... (35) (38) (20)
Other income (expense)............................. 33 (651) 161
-------- -------- --------
Total other income......................... 2,037 1,741 2,406
-------- -------- --------
Income (loss) before income taxes.................. (38,828) (26,668) 24,362
Provision for (benefit from) income taxes............ 217 (9,334) 10,942
-------- -------- --------
Net income (loss).................................... $(39,045) $(17,334) $ 13,420
======== ======== ========
Net income (loss) per share
Basic.............................................. $ (1.50) $ (0.69) $ 0.54
======== ======== ========
Diluted............................................ $ (1.50) $ (0.69) $ 0.52
======== ======== ========
Number of shares used in per share computations
Basic.............................................. 25,978 25,268 24,641
======== ======== ========
Diluted............................................ 25,978 25,268 25,658
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
AUSPEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net Income (loss).................................... $(39,045) $(17,334) $13,420
Other comprehensive income (loss):
Unrealized holding gains (losses) on
available-for-sale securities, net of tax....... (81) 28 (3)
Foreign currency translation adjustment, net of
tax............................................. (34) (103) (220)
-------- -------- -------
Comprehensive income (loss).......................... $(39,160) $(17,409) $13,197
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 35
AUSPEX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 26,592 $ 23,312
Short-term investments.................................... 16,045 27,449
Accounts receivable, net of allowances of $1,407 and
$1,709 respectively.................................... 20,374 25,642
Inventories............................................... 10,905 12,208
Income tax receivable..................................... 4,865 9,010
Prepaid expenses and other................................ 5,054 4,849
Deferred tax assets....................................... -- 8,970
-------- --------
Total current assets.............................. 83,835 111,440
Property and Equipment
Computer and manufacturing equipment...................... 39,292 38,624
System spares............................................. 15,992 17,391
Furniture and fixtures.................................... 1,466 6,248
Leasehold improvements.................................... 13,679 13,100
-------- --------
70,429 75,363
Less -- accumulated depreciation and amortization......... (41,588) (41,746)
-------- --------
Total property and equipment, net................. 28,841 33,617
Other Assets................................................ 2,372 2,136
-------- --------
$115,048 $147,193
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Current Liabilities
Accounts payable.......................................... $ 13,316 $ 10,066
Accrued liabilities....................................... 11,975 12,488
Deferred revenue.......................................... 9,276 9,450
-------- --------
Total current liabilities......................... 34,567 32,004
Long-Term Liabilities
Deferred revenue.......................................... 1,304 --
Stockholders' Equity
Common stock, $.001 par value -- 50,000,000 shares
authorized; 26,734,762 and 25,694,040 shares issued and
outstanding, respectively.............................. 27 26
Additional paid-in capital................................ 85,903 82,756
Retained earnings (deficit)............................... (6,118) 32,927
Unrealized gain (loss) from available-for-sale
securities............................................. (43) 38
Cumulative translation adjustment......................... (592) (558)
-------- --------
Total stockholders' equity........................ 79,177 115,189
-------- --------
$115,048 $147,193
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 36
AUSPEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN
FROM
COMMON STOCK ADDITIONAL RETAINED AVAILABLE- CUMULATIVE
------------------- PAID-IN NOTES EARNINGS FOR SALE TRANSLATION
SHARE AMOUNT CAPITAL RECEIVABLE (DEFICIT) SECURITIES ADJUSTMENT TOTAL
---------- ------ ---------- ---------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996....... 24,360,507 $24 $73,169 $(49) $ 36,841 $ -- $(172) $109,813
Issuance of common stock to
employees.................. 652,859 1 4,097 -- -- -- -- 4,098
Repayment of notes
receivable................. -- -- -- 49 -- -- -- 49
Repurchase of previously
exercised stock options.... (8,401) -- (10) -- -- -- -- (10)
Tax benefits related to
exercise of stock
options.................... -- -- 1,179 -- -- -- -- 1,179
Unrealized loss on
available-for-sale
securities................. -- -- -- -- -- (5) -- (5)
Translation adjustment....... -- -- -- -- -- -- (228) (228)
Net Income................... -- -- -- -- 13,420 -- -- 13,420
---------- --- ------- ---- -------- ---- ----- --------
BALANCE, JUNE 30, 1997....... 25,004,965 25 78,435 -- 50,261 (5) (400) 128,316
Issuance of common stock to
employees.................. 689,075 1 3,715 -- -- -- -- 3,716
Tax benefits related to
exercise of stock
options.................... -- -- 606 -- -- -- -- 606
Unrealized gain on
available-for-sale
securities................. -- -- -- -- -- 43 -- 43
Translation adjustment....... -- -- -- -- -- -- (158) (158)
Net loss..................... -- -- -- -- (17,334) -- -- (17,334)
---------- --- ------- ---- -------- ---- ----- --------
BALANCE, JUNE 30, 1998....... 25,694,040 26 82,756 -- 32,927 38 (558) 115,189
Issuance of common stock to
employees.................. 1,040,722 1 3,147 -- -- -- -- 3,148
Unrealized gain on available
for-sale-securities........ -- -- -- -- -- (81) -- (81)
Translation adjustment....... -- -- -- -- -- -- (34) (34)
Net loss..................... -- -- -- -- (39,045) -- -- (39,045)
---------- --- ------- ---- -------- ---- ----- --------
BALANCE, JUNE 30, 1999....... 26,734,762 $27 $85,903 $ -- $ (6,118) $(43) $(592) $ 79,177
========== === ======= ==== ======== ==== ===== ========
</TABLE>
The accompanying notes are integral part of these financial statements.
36
<PAGE> 37
AUSPEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)........................................ $(39,045) $(17,334) $ 13,420
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization......................... 13,332 14,378 12,435
Restructuring charges, net of tax..................... -- 5,903 --
In-process research and development................... -- -- 7,354
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.......... 5,268 17,488 (5,282)
(Increase) decrease in inventories.................. (2,931) 2,188 (1,966)
(Increase) decrease in income tax receivable........ 4,145 (9,010) --
(Increase) decrease in deferred tax assets.......... 8,970 (1,661) 289
(Increase) decrease in prepaid expenses and other... (205) 157 (1,687)
Increase in accounts payable........................ 3,250 3,160 741
Increase (decrease) in accrued liabilities.......... (513) (666) 232
Increase (decrease) in deferred revenue............. 1,130 (41) 2,913
-------- -------- --------
Net cash (used in) provided by operating activities... (6,599) 14,562 28,449
-------- -------- --------
Cash Flows from Investing Activities
Purchases of available-for-sale short-term investments... (38,016) (25,096) (38,220)
Proceeds from sales/maturities of available-for-sale
short-term investments................................ 49,339 33,520 30,734
Payment for Alphatronix, Inc. acquisition, net of cash
acquired.............................................. -- -- (5,600)
Purchase of property and equipment....................... (15,205) (28,894) (16,385)
Change in other assets................................... (236) -- --
-------- -------- --------
Net cash used in investing activities................. (4,118) (20,470) (29,471)
-------- -------- --------
Cash Flows from Financing Activities
Proceeds from sale of common stock....................... 3,148 4,322 4,147
Repurchase of common stock............................... -- -- (10)
Proceeds from sale and leaseback of equipment............ 10,883 -- --
-------- -------- --------
Net cash provided by financing activities............. 14,031 4,322 4,137
-------- -------- --------
Effect of Exchange Rate Changes on Cash.................... (34) (158) (228)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents....... 3,280 (1,744) 2,887
Cash and Cash Equivalents, Beginning of Year............... 23,312 25,056 22,169
-------- -------- --------
Cash and Cash Equivalents, End of Year..................... $ 26,592 $ 23,312 $ 25,056
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 38
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Auspex Systems, Inc. (the "Company") was incorporated in 1987 in California
and reincorporated in Delaware in 1991. The Company develops, manufactures,
markets, sells and supports a line of high-performance UNIX/Windows NT
multi-protocol network file/data servers for the technical workstation market.
The Company's markets are principally in North America, Pacific Rim and Europe
and include customers in the technical and commercial computing market. See Note
9 for information on revenues by geographic area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries after elimination
of intercompany accounts and transactions.
Estimates in the Preparation of Consolidated Financial Statements The
preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Foreign Currency Translations The functional currency of the Company's
foreign subsidiaries is the local currency. Accordingly, gains and losses
resulting from the translation of the subsidiaries' financial statements are
reported as a separate component of stockholders' equity.
Revenue Recognition Product revenue includes hardware sales and software
license fees. Effective July 1, 1997, the Company changed its revenue
recognition policy on system sales to end users such that revenues from system
sales are generally recognized upon shipment. Previously, the Company generally
recognized system sales to end users when the equipment had been shipped,
installed and accepted by the end user. The reason for this change was to better
conform the Company's policy with industry practices. The impact of this change
did not have a material effect on the Company's financial statements. The
installation of the Company's systems is not considered a significant obligation
and acceptance by the customer is not considered a significant uncertainty.
Revenues from upgrade sales are generally recognized at the time the equipment
is shipped. Provisions for product sales returns and allowances are recorded in
the same period as the related revenue. Revenues earned under software license
agreements with end users are generally recognized when the software has been
shipped and there are no significant obligations remaining.
Service revenue includes installation, maintenance and training, and is
recognized ratably over the contractual period or as the services are provided.
Cash, Cash Equivalents and Short-Term Investments For purposes of the
statement of cash flows, all cash equivalents consist of investments in
certificates of deposits, money market deposits, and municipal bonds with
original maturities of three months or less. Substantially all short-term
investments consist of municipal bonds, which the Company intends to hold
between three and twelve months.
The Company classifies its investments in debt and equity securities as
available-for-sale in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Securities classified as available-for-sale are reported at fair
market value with the related unrealized gains and losses, reported as a
separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other than temporary are included in other
income.
At June 30, 1999, the Company's available-for-sale securities had
contractual maturities that expire at various dates through June 2000. The fair
value of available-for-sale securities was determined based on quoted market
prices at the reporting date for those securities.
38
<PAGE> 39
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At June 30, 1999 and 1998, the amortized cost basis, aggregate fair value
and gross unrealized holding gains (losses) by major security type are as
follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE UNREALIZED
JUNE 30, 1999 COST FAIR VALUE GAINS (LOSSES)
------------- --------- ---------- --------------
<S> <C> <C> <C>
Available-for-Sale Securities
US Agency (Gov't)........................................ $13,308 $13,281 $(27)
Auction rate securities.................................. 2,900 2,900 --
Certificate of deposit................................... 1,999 1,996 (3)
Corporate bonds.......................................... 2,507 2,498 (9)
Money market............................................. 3,380 3,380 --
Commercial paper......................................... 5,022 5,018 (4)
------- ------- ----
Total Investment in Securities................... $29,116 $29,073 $(43)
======= ======= ====
JUNE 30, 1998
- -----------------------------------------------------------
Available-for-Sale Securities
Municipal bonds.......................................... $34,861 $34,899 $ 38
Commercial paper......................................... 1,417 1,417 --
------- ------- ----
Total Investment in Securities................... $36,278 $36,316 $ 38
======= ======= ====
</TABLE>
In fiscal year 1999, there were no significant gains or losses realized on
the Company's cash equivalents or short-term investments. Available-for-sale
securities sold in fiscal year 1999 generated proceeds of $20,877,000 and
provided a realized gain of $57,690 (the realized gain was calculated using the
'specific identification' method).
Supplemental Statement of Cash Flows Disclosures Cash paid for interest
during fiscal 1999, 1998 and 1997 was approximately $11,000, $38,000 and
$20,000, respectively. Cash paid for income taxes during fiscal 1999, 1998 and
1997 was approximately $726,000, $1,621,000 and $6,052,000, respectively. In
fiscal 1999, net inventory capitalized into property and equipment was
$4,234,000. No inventory was capitalized into property and equipment in fiscal
1998. In fiscal 1998, non-cash activity consisted of $606,000 from tax benefits
related to exercise of stock options.
Concentrations of Credit Risk Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
investments and accounts receivables. The Company's cash investment policy
limits the amount of credit exposure to any one issuer and restricts purchase of
these investments to issuers evaluated as creditworthy. Concentrations of credit
risk in trade receivables is limited as a result of the large number of
customers comprising the Company's customer base and their dispersion across
many different industries and geographies.
Inventories Inventories are stated at the lower of cost (first-in,
first-out) or market, and include material, labor and manufacturing overhead
costs. Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Purchased materials................................ $ 4,158 $ 5,615
Systems in process................................. 4,044 4,041
Finished goods..................................... 2,703 2,552
------- -------
$10,905 $12,208
======= =======
</TABLE>
Inventories contained components and assemblies in excess of the Company's
current estimated requirements and were fully reserved at June 30, 1999 and
1998.
39
<PAGE> 40
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain of the Company's products contain critical components supplied by a
single or a limited number of third-parties. The Company has an inventory of
these critical components so as to ensure an available supply of products for
its customers. Any significant shortage of these components or the failure of
the third party suppliers to maintain or enhance these components could
materially and adversely affect the Company's results of operations.
Property And Equipment Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Computer and manufacturing equipment..... 1.5 to 5 years
System spares............................ 2 to 3 years
Furniture and fixtures................... 3 years
Leasehold improvements................... Shorter of the lease term or estimated
useful life
</TABLE>
Software Development Costs The Company accounts for software development
costs in compliance with Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed". Capitalization of software development costs begins upon
the determination of technological feasibility. The determination of
technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors including anticipated future gross product revenues, estimated
economic life and changes in hardware and software technology. No amounts were
capitalized in fiscal 1999, 1998 and 1997.
Amortization of capitalized software development costs begins when the
products are available for general release to customers and is computed on an
individual product basis and is the greater of the amount computed on a
units-sold basis or straight-line basis over the estimated economic life of the
product. Amortization of software development costs amounted to $12,000,
$343,000 and $411,000 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
Accrued Liabilities Accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Payroll, bonus and vacation................................ $ 6,616 $ 5,901
Other...................................................... 5,359 6,587
------- -------
$11,975 $12,488
======= =======
</TABLE>
Net Income (Loss) Per Share Basic net income (loss) per share is computed
based only on the weighted average number of common shares outstanding during
the period and does not give effect to the dilutive effect of common equivalent
shares, such as stock options. Diluted net income per share is computed
40
<PAGE> 41
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
based on the weighted average number of common shares plus dilutive potential
common shares calculated in accordance with the treasury stock method.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net income (loss)........................................... $(39,045) $(17,334) $13,420
======== ======== =======
Basic Earnings Per Share
Income (loss) available to common stockholders............ $(39,045) $(17,334) $13,420
Weighted average common shares outstanding................ 25,978 25,268 24,641
-------- -------- -------
Basic earnings (loss) per share........................... $ (1.50) $ (0.69) $ 0.54
======== ======== =======
Diluted Earnings Per Share
Income (loss) available to common stockholders............ $(39,045) $(17,334) $13,420
-------- -------- -------
Weighted average common shares outstanding................ 25,978 25,268 24,641
Dilutive potential common shares from stock options....... -- -- 1,017
-------- -------- -------
Weighted average common shares and dilutive potential
common shares.......................................... 25,978 25,268 25,658
-------- -------- -------
Diluted earnings (loss) per share......................... $ (1.50) $ (0.69) $ 0.52
======== ======== =======
</TABLE>
Options to purchase 639,051 weighted shares outstanding during 1997 were
excluded from the computation of diluted earnings per share because the options
exercise prices were greater than the average market price of the Company's
common stock during those years. All options outstanding during fiscal 1999 and
1998, approximately 4,887,000 and 4,583,000 shares respectively, were excluded
from the computation of diluted earnings per share since their inclusion would
have been, anti-dilutive due to the loss available to common stockholders.
Employee Stock Plans In accordance with the provisions of SFAS No. 123,
the Company applies APB Opinion No. 25 and related interpretations to account
for its employee stock option and stock purchase plans, and accordingly, does
not recognize compensation expense. Note 7 of the Consolidated Financial
Statements contains a summary of the pro forma effects to reported net income
and earnings per share as if the Company had elected to recognize compensation
expense based on the fair value of the options granted at grant date as
prescribed by SFAS No. 123.
Comprehensive Income The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," in the first quarter of fiscal 1999. SFAS No. 130
establishes standards for disclosure and financial statement display for
reporting total comprehensive income and its individual components.
Comprehensive income as defined includes all changes in equity during a period
from non-owner sources. The Company's comprehensive income includes net income
and foreign currency translation adjustments.
The following table sets forth the components of other comprehensive income
(loss) net of income tax for the year ended June 30 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
TAX NET-OF- TAX NET-OF- TAX NET-OF-
PRE-TAX (EXPENSE) TAX PRE-TAX (EXPENSE) TAX PRE-TAX (EXPENSE) TAX
AMOUNT ON BENEFIT AMOUNT AMOUNT ON BENEFIT AMOUNT AMOUNT ON BENEFIT AMOUNT
------- ---------- ------- ------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other comprehensive income
(loss):
Unrealized holding gains
(losses) on
available-for-sale
securities................... $ (81) $-- $ (81) $ 43 $(15) $ 28 $ (5) $ 2 $ (3)
Foreign currency Translation
adjustment................... (34) -- (34) (159) 56 (103) (400) 180 (220)
----- --- ----- ----- ---- ----- ----- ---- -----
$(115) $-- $(115) $(116) $ 41 $ (75) $(405) $182 $(223)
===== === ===== ===== ==== ===== ===== ==== =====
</TABLE>
41
<PAGE> 42
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Segments In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 131 changes the way companies report selected segment
information in annual financial statements and also requires companies to report
selected segment information in interim financial reports to stockholders. The
Company operates in one reportable segment. SFAS No. 131 has been implemented by
the Company. Note 9 of the Consolidated Financial Statements contains a summary
table of industry segment, geographic and customer information.
New Accounting Pronouncements In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that a reporting entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company is
required to adopt SFAS No. 133 in the first quarter of fiscal 2001. The impact
of adopting SFAS No. 133 to the Company has not been determined.
Reclassification The Company has reclassified certain prior year balances
from selling, general and administrative expenses to cost of service revenues to
reflect costs associated with service revenue to conform to the current year
presentation. The amount of reclassification for years ended June 30, 1998 and
June 30, 1997 were $3,045,000 and $2,474,000, respectively.
3. ALPHATRONIX, INC. ACQUISITION
On June 30, 1997, the Company acquired all of the outstanding shares of
Alphatronix, Inc. ("Alphatronix"), a developer and marketer of
open-systems-based storage management solutions, for a total purchase price of
$7.7 million. The acquisition was accounted for using the purchase method of
accounting. A portion of the purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair value. The fair value of
tangible assets acquired and liabilities assumed was $300,000 and $300,000,
respectively. In addition, $7.4 million of the purchase price was allocated to
in-process research and development projects that had not reached technological
feasibility and had no probable alternative future uses, which the Company
expensed at the date of the acquisition as a non-recurring charge. The remainder
of the purchase price, $300,000, was allocated to goodwill and is being
amortized over five years on a straight-line basis. Comparative pro forma
information has not been presented, as the results of operations for Alphatronix
are not material to the Company's financial statements.
4. LINE OF CREDIT
In March 1999, the Company entered into a revolving line of credit
agreement with a bank under which it can borrow up to $15,000,000. The line of
credit bears interest at the Prime Rate for advances under $1,000,000 (the Prime
Rate at June 30, 1999 was 7.75%), or for advances of $1,000,000 and above, the
line of credit bears interest at the LIBOR Rate plus 2.0%. The line of credit
expires on October 1, 2000. At June 30, 1999 there were no borrowings
outstanding under the line of credit agreement. There were commitments against
the line of credit, for two letters of credit totaling approximately $3,700,000,
as of June 30, 1999. The line of credit is secured by the Company's inventory
and accounts receivable. The line of credit agreement contains certain financial
covenants determined on a quarterly basis.
5. COMMITMENTS AND CONTINGENCIES
Facilities and equipment are leased under various operating leases. Rent
expense was approximately $5,204,000, $4,720,000 and $3,197,000, for fiscal
1999, 1998 and 1997, respectively. During 1997, the Company entered into lease
agreements for four buildings in Santa Clara, California. The leases for these
facilities commenced in March 1998 and expire in February 2010. In addition, the
lease agreements contain
42
<PAGE> 43
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
three successive options to extend the lease terms for sixty months each. During
fiscal 1999, the Company entered into a sub-lease agreement for one building in
its Santa Clara facility.
As of June 30, 1999, future minimum gross lease payments under
non-cancelable leases were as follows (in thousands):
<TABLE>
<CAPTION>
NET
OPERATING SUB-LEASE OPERATING
YEARS ENDING JUNE 30, LEASES PAYMENTS LEASES
--------------------- --------- --------- ---------
<S> <C> <C> <C>
2000...................................................... $11,116 $(1,538) $ 9,578
2001...................................................... 10,543 (1,575) 8,968
2002...................................................... 8,227 (1,613) 6,614
2003...................................................... 5,806 -- 5,806
2004...................................................... 4,664 -- 4,664
Thereafter................................................ 24,099 -- 24,099
------- ------- -------
Total minimum lease payments...................... $64,455 $(4,726) $59,729
======= ======= =======
</TABLE>
As of both June 30, 1999 and 1998, the cost of leased equipment was
approximately $1,401,000 and was fully amortized.
6. RESTRUCTURING COSTS
In the quarter ended June 30, 1998, the Company recorded restructuring
charges totaling $7,349,000. These charges reflect steps the Company took to
improve its product development efforts streamline operations and reduce overall
costs. The restructuring charges comprised $1,100,000 for severance and benefits
related to reduction of personnel due to consolidation of certain operations,
$1,200,000 for consolidation of excess facilities and $5,049,000 to write off or
write down equipment and other assets related to operations and activities that
the Company has exited. In connection with the restructuring charges taken in
the quarter ended June 30, 1998, the Company terminated 84 employees as of
fiscal year ended June 30, 1998. The employee groups affected by the reduction
in force included engineering, sales, marketing, customer service and
operations. The implementation of the restructuring plan was substantially
completed at the end of September 1998.
The following table summarizes the Company's restructuring activity for the
fiscal year ended June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
EXCESS
EQUIPMENT
SEVERANCE EXCESS & OTHER
& BENEFITS FACILITIES ASSETS TOTAL
---------- ---------- --------- -------
<S> <C> <C> <C> <C>
Restructuring amounts............................. $ 1,100 $1,200 $ 5,049 $ 7,349
Cash charges...................................... (1,100) (800) -- (1,900)
Non-cash charges.................................. -- -- (4,034) (4,034)
------- ------ ------- -------
Reserve balances, June 30, 1998................... $ -- $ 400 $ 1,015 $ 1,415
------- ------ ------- -------
Non-cash charges.................................. -- (86) (877) (963)
------- ------ ------- -------
Reserve balances, June 30, 1999................... $ -- $ 314 $ 138 $ 452
======= ====== ======= =======
</TABLE>
7. STOCK OPTION AND STOCK PURCHASE PLANS
The Company has four stock option plans, the 1988 Employee Stock Option
Plan ("1988 Plan"), the 1997 Stock Plan ("1997 Plan"), the 1998 Non-Statutory
Stock Option Plan ("1998 Plan") and the Directors' Stock Option Plan
("Directors' Plan"), and an employee stock purchase plan ("1993 Employee Stock
43
<PAGE> 44
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Purchase Plan"). The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income (loss) and diluted earnings (loss) per share
would have been adjusted to the following pro forma amounts (in thousands,
except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $(39,045) $(17,334) $13,420
Pro forma................................................. $(43,676) $(22,301) $ 6,165
Diluted earnings (loss) per share:
As reported............................................... $ (1.50) $ (0.69) $ 0.52
Pro forma................................................. $ (1.68) $ (0.88) $ 0.24
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.0%, 5.5% and 6.0%, respectively; expected volatility of 81%,
68% and 69%, respectively; no expected dividends, and an expected life of 0.4
years beyond the vest date for each year's vesting increment of an option.
Since the SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1, 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
In August 1998, the Company offered its employees the ability to reprice
stock options granted prior to June 30, 1998 to the current fair market value.
As a result, the Company repriced 3,739,857 options at prices ranging from $2.75
to $18.25 per share at the then current fair market value of $2.75 per share.
Employees who submitted their option grants for repricing agreed to forgo
exercising their vested options for six months.
In November 1996, the Company offered its employees the option of
exchanging and canceling stock options granted from June 1995 through October
1996 for new options priced as of November 1, 1996. As a result, the Company
canceled 1,933,592 options at prices ranging from $10.75 to $23.125 per share
and reissued the same number of options at the then current fair market value of
$10.25 per share. Employees who submitted their option grants for repricing had
their vesting schedules amended by moving their vesting back three months or
restarting the vesting as of the new grant date, depending on the date of the
grant.
The Company may sell up to 1,300,000 shares of stock to its full-time
employees under the 1993 Employee Stock Purchase Plan. The Company has sold
357,101, 282,337 and 218,684 shares in 1999, 1998 and 1997, respectively, and
has sold 1,291,441 shares through June 30, 1999. The Company sells shares at 85%
of the lower of the stock's closing market price on the first or last day of the
six-month offering period. The weighted-average fair value of shares sold in
1999, 1998 and 1997, respectively, was $3.71, $6.00, and $9.00, respectively.
The Company could grant options for up to 10,000,000 shares under the 1988
Plan which expired in April 1988. The option exercise price is not less than
100% of the fair value of the shares on the date of grant, except that
non-statutory options may be granted at 85% of such fair value. The 1988 Plan
options are fully vested after five years and expire after ten years. For
options granted after November 20, 1997, options are generally fully vested
after four years and expire after ten years.
Stockholders approved the 1997 Plan in April 1998. The Company may grant
options for up to 1,250,000 shares under the 1997 Plan. The Company has granted
options on 781,937 shares through June 30, 1999. The option exercise price is
not less than 100% of the fair value of the shares on the date of grant, except
44
<PAGE> 45
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
that non-statutory options may be granted at 85% of such fair value. The 1997
Plan options are generally fully vested after four years and expire after ten
years.
The Board of Directors approved the 1998 Plan in August 1998. The Company
may grant options for up to 3,000,000 shares under the 1998 Plan. The Company
granted options on 1,685,782 shares through June 30, 1999. The options exercise
price is not less than 100% of the fair value of the shares on the date of
grant. The 1998 Plan options are generally fully vested after four years and
expire after ten years.
The Company may grant options for up to 325,000 shares under the Directors'
Plan. The Company granted options on 76,000 shares (net of lapsed and terminated
options) through June 30, 1999. The option exercise price equals the closing
price of the stock on the day of the grant. The options are generally fully
vested after four years and expire after ten years.
A summary of the status of the Company's stock option plans at June 30,
1999, 1998 and 1997 incorporating changes during the years then ended is
presented in the table below (share amounts in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
------------------ ------------------ ------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 4,583 $9.45 4,080 $ 9.07 4,088 $10.56
Granted............................. 2,610 $6.34 2,565 $ 9.71 3,574 $10.86
Exercised........................... (684) $2.67 (410) $ 4.89 (434) $ 4.85
Cancelled........................... (1,622) $6.13 (1,652) $10.04 (3,148) $13.66
------ ------ ------
Outstanding at end of year.......... 4,887 $4.68 4,583 $ 9.45 4,080 $ 9.07
====== ====== ======
Exercisable end of year............. 1,158 $3.42 1,303 $ 8.91 1,145 $ 7.21
------ ------ ------
Weighted fair value per option
granted........................... $1.83 $ 4.71 $ 3.50
----- ------ ------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER REMAINING YEARS EXERCISE PRICE NUMBER EXERCISE PRICE
--------------- ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$0.25 - $ 2.56... 189 8.83 $2.21 10 $0.50
$2.75 - $ 2.75... 2,750 7.59 $2.75 977 $2.75
$2.81 - $ 7.13... 985 9.54 $5.80 124 $6.56
$7.50 - $14.88... 963 9.73 $9.82 47 $9.64
----- -----
$0.25 - $14.88... 4,887 8.45 $4.74 1,158 $3.42
===== =====
</TABLE>
Stockholder Rights Plan During 1995, the Company established a stock
purchase rights plan ("the Rights Plan"), under which stockholders may be
entitled to purchase stock in the Company, or in an acquirer of the Company at a
discounted price in the event of certain efforts to acquire control of the
Company. The rights expire on the earliest of (a) April 19, 2005, (b) exchange
or redemption of the rights pursuant to the Rights Plan, or (c) consummation of
a merger or consolidation.
45
<PAGE> 46
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The provision (benefit from) is based upon the income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
1999 1998 1997
YEAR ENDED JUNE 30, -------- -------- -------
<S> <C> <C> <C>
Domestic.................................................... $(39,381) $(29,032) $24,362
Foreign..................................................... $ 533 $ 2,364 $ 0
-------- -------- -------
Total............................................. $(38,828) $(26,668) $24,362
======== ======== =======
</TABLE>
The provision for (benefit from) income taxes consisted of the following
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1999 1998 1997
---- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................... $ -- $(6,992) $ 8,371
State..................................................... -- (68) 1,297
Foreign................................................... 217 1,049 --
---- ------- -------
217 (6,011) 9,668
---- ------- -------
Deferred (benefit):
Federal................................................... -- (3,278) 1,083
State..................................................... -- (45) 191
---- ------- -------
-- (3,323) 1,274
---- ------- -------
Net tax (benefit) provision................................. $217 $(9,334) $10,942
==== ======= =======
</TABLE>
The provision for (benefit from) income taxes is reconciled with the
Federal statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Provision (benefit) computed at Federal statutory @ 35%
rate...................................................... $(13,590) $(9,334) $ 8,526
Increase in valuation allowance............................. 13,590 -- --
State taxes, net of Federal tax benefit..................... -- (113) 1,078
Research and development and other credits.................. -- (1,300) (650)
In-process research and development write-off............... -- -- 2,180
FSC commission.............................................. -- -- (746)
Foreign taxes and other..................................... 217 1,413 554
-------- ------- -------
Net tax provision (benefit)................................. $ 217 $(9,334) $10,942
======== ======= =======
Net effective tax rate...................................... 0% 35% 45%
======== ======= =======
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Net operating losses........................................ $ 8,009 $ --
Depreciation and asset basis differences.................... 1,782 1,496
Inventory reserve........................................... 3,028 4,625
Other reserves and accruals, not currently deductible for
tax purposes.............................................. 996 2,901
Other & Credits............................................. (225) (52)
-------- ------
Gross deferred tax asset.................................... $ 13,590 $8,970
Less: valuation allowance................................... (13,590) --
-------- ------
Net deferred tax asset...................................... $ -- $8,970
======== ======
</TABLE>
46
<PAGE> 47
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of June 30, 1999, the Company had gross deferred tax assets of
approximately $15.3 million. Due to the uncertainty surrounding the realization
of the future tax attributes, the Company has recorded a valuation allowance
against its net deferred tax assets.
As of June 30, 1999, the Company had NOL carryforwards of approximately
$19,000,000 and $40,000,000 for federal and state tax purposes, respectively.
The Federal NOL carryforwards expire through 2019 and the state NOL's expire
through 2004. The Company also has research credits of approximately $1,100,000
and $600,000 for federal and state tax purposes, respectively.
9. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company, which operates in one reportable industry segment, develops,
manufactures, distributes and supports a line of multi-protocol high performance
network file servers and high availability enterprise data management software
solution for storing, serving and managing multiple terabytes of network data
for the technical network market.
Export revenues and long-lived assets (net of accumulated depreciation)
consisted of the following (in thousands):
Revenues and long-lived assets by geography (net of accumulated
depreciation) consisted of the following for the years ended June 30, (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
LONG LIVED LONG LIVED LONG LIVED
REVENUE ASSETS REVENUE ASSETS REVENUE ASSETS
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........... $ 75,951 $27,966 $110,801 $32,523 $135,746 $18,410
Europe.................. 19,330 625 28,689 860 28,191 1,526
Pacific Rim............. 13,453 249 23,388 229 31,759 89
Canada.................. 4,741 1 6,034 5 6,790 11
-------- ------- -------- ------- -------- -------
Total......... $113,475 $28,841 $168,912 $33,617 $202,486 $20,036
======== ======= ======== ======= ======== =======
</TABLE>
One customer accounted for 20% of total revenues in each of fiscal 1999 and
1998, and 10% of total revenues in fiscal 1997. One other customer accounted for
15% of total revenues in fiscal 1997. No other customers accounted for 10% or
more of total revenues in these years.
47
<PAGE> 48
AUSPEX SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO AGAINST END
DESCRIPTION OF PERIOD EXPENSE REVENUES DEDUCTIONS OF PERIOD
----------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Accounts Receivable Allowances:
Year ended June 30, 1997............ $1,535 $ 109 $582 $(1,033) $1,193
Year ended June 30, 1998............ 1,193 220 556 (260) 1,709
Year ended June 30, 1999............ 1,709 408 51 (761) 1,407
Restructuring Reserve:
Year ended June 30, 1998............ $ -- $7,349 $ -- $(5,934) $1,415
Year ended June 30, 1999............ 1,415 -- -- (963) 452
</TABLE>
48
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1(1) Certificate of Incorporation of Registrant as amended and
restated to date.
3.2(1) By-laws of Registrant as amended to date.
4.1(2) Preferred Shares Rights Agreement between the Registrant and
The First National Bank of Boston as Rights Agent dated
April 19, 1995.
10.1(1)(3) 1988 Stock Option Plan and forms of Incentive Stock Option
Agreements and Nonstatutory Stock Option Agreements, as
amended to date.
10.2(1)(3)(4) 1993 Directors' Stock Option Plan and forms of Option
Agreements, as amended to date.
10.3(1)(3)(4) 1993 Employee Stock Purchase Plan and forms of Agreements,
as amended to date.
10.4(1)(3) 401(k) Plan, as amended to date.
10.5(1)(3) Summary of Executive Bonus Program.
10.6(1)(3) Form of Directors' and Officers' Indemnification Agreement
with all of its Directors and Officers.
10.9(1)(5) OEM Agreement dated March 9, 1993 between the Registrant and
Fuji Xerox Company, Ltd.
10.10(A)(1)(5) Distributor Agreement dated June 6, 1990 between the
Registrant and Nissho Electronics Corporation.
10.10(B)(5) Distributor Agreement dated June 6, 1990 between the
Registrant and Nissho Electronics Corporation, as amended on
July 29, 1997.
10.11(1)(5) Agreement between the Registrant and Solectron Corporation
dated May 20, 1991, as amended on November 18, 1992.
10.12(1) U.S. OEM Discount Agreement between the Registrant and Sun
Microsystems, Inc. effective as of August 18, 1988, as
amended by Addendum dated September 8, 1988 and Addendum
dated September 14, 1989.
10.13(1) Source Code License between the Registrant and Sun
Microsystems, Inc. dated August 31, 1988, as amended on
April 30, 1991, February 11, 1992 and March 18, 1992.
10.14(1) NFS Software Agreement between the Registrant and Sun
Microsystems, Inc. dated September 29, 1988.
10.15(6)(7) Software Agreement between the Registrant and AT&T
Information Systems Inc. dated June 2, 1988, as amended by
Supplement Number 1, Supplement Number 2 dated August 5,
1988 and Supplement Number 3 dated August 10, 1990, as
amended on June 28, 1993.
10.16(6)(7) Sublicensing Agreement between the Registrant and AT&T
Information Systems Inc. dated August 30, 1988, as amended
on June 28, 1993.
10.17(1) Software Agreement between the Registrant and UNIX System
Laboratories, Inc. dated April 29, 1992.
10.18(1) License Agreement with the Regents of the University of
California dated June 9, 1988, as amended by Addendum dated
October 21, 1988.
10.19(8)(9) Intel Corporation Purchase Agreement between Intel
Corporation and the Registrant dated March 22, 1994.
10.20(10) Warranty and Service Provider Agreement between the
Registrant and AT&T Global Information Systems dated April
15, 1994.
10.21(10) SunSoft Technology License and Distribution Agreement
between the Registrant and SunSoft, Inc. dated December 17,
1993.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.23(10) Amendment No. 2 to Lease Agreement between the Registrant
and WHC-SIX Real Estate dated February 28, 1996.
10.24(10) Interactive SPARC Software and Sublicensing Agreement
between Auspex Systems, Inc. and Interactive systems
Corporation, dated November 15, 1991.
10.25(11) Lease Agreement by and Between South Bay/San Tomas
Associates and Auspex Systems, Inc. dated January 14, 1997,
for 2800 Scott Boulevard, Santa Clara facility.
10.26(11) Lease Agreement by and Between South Bay/San Tomas
Associates and Auspex Systems, Inc. dated January 14, 1997,
for 2300, 2320, 2330 Central Expressway, Santa Clara
facility.
10.27(3)(12) 1997 Stock Option Plan and Forms of Incentive Stock Option
Agreements and Nonstatutory Stock Option Agreements, as
amended to date.
10.28(3) 1998 Non-Statutory Stock Plan and Form of Option Agreements.
10.29(13) Form of Change of Control Severance Agreement, filed May 12,
1999.
10.30 Form of Change of Control Severance Agreement entered into
the form of the Company and Bruce N. Moore, President and
Chief Executive Officer, dated June 16, 1999.
10.31 Software Support Agreement between the Registrant and AT&T
dated July 10, 1997.
10.32 Software Licensing Agreement between the Registrant and AT&T
Corporation dated June 3, 1997, as amended on September 14,
1998.
10.33
10.34 Master Value Added Distribution Agreement between the
Registrant and Fuji Xerox Co. Ltd. dated May 21, 1997.
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24.1 Power of Attorney (See Page 32).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Registrant's Registration Statement on Form S-1, as
amended (File No. 33-60052), which was declared effective on May 11, 1993.
(2) Incorporated by reference to Exhibit 1 filed in connection with the
Registrant's Form 8-A which was filed on April 20, 1995.
(3) Designates management contract or compensatory plan arrangements required
to be filed as an exhibit of this Annual Report on Form 10-K pursuant to
Item 14(c).
(4) Incorporated by reference to exhibits filed in connection with Registrants'
Proxy Statement for the 1997 Annual Meeting of Stockholders, which was
filed on October 14, 1997.
(5) Confidential treatment granted by order effective May 11, 1993.
(6) Incorporated by reference to identically numbered exhibits filed in
connection with Registrant's Form 10-K for the fiscal year ended June 25,
1993 (File No. 33-60052).
(7) Confidential treatment granted by order effective January 14, 1994.
(8) Incorporated by reference to Exhibit 10.1 filed in connection with
Registrant's Form 10-Q for the quarter ended March 31, 1994 (File No.
0-21432), which was filed on May 16, 1994.
(9) Confidential treatment granted by order effective July 7, 1994.
(10) Incorporated by reference to exhibits filed in connection with the
Registrant's Form 10-K for the fiscal year ended June 30, 1994 (File No.
0-21432), which was filed on September 28, 1994 and confidential treatment
granted by order effective December 5, 1994.
<PAGE> 51
(11) Incorporated by reference to exhibits filed in connection with Registrant's
Form 10-K for the fiscal year ended June 30, 1997 (File No. 0-21432), which
was filed on September 24, 1997.
(12) Incorporated by reference to exhibits filed in connection with Registrants'
Proxy Statement for the Special Meeting of Stockholders held on April 23,
1998 which was filed on March 20, 1998.
(13) Incorporated by reference to exhibits in connection with Registrant's Form
10-Q for the quarter ended March 31, 1999, which was filed on May 12, 1999,
Form of Change of Control Severance Agreement entered into the form of the
Company and each of:
-- Steve Aleshire, Vice President of World Wide Customer Services
-- R. Marshall Case, Vice President of Finance and Chief Financial
Officer
-- John S. Coviello, Vice President of Research and Development
-- Dorothy Krier, Vice President of Human Resources
-- John P. Livingston, Vice President of Operations
-- Fred J. Wiele, Vice President of Marketing, dated November 25, 1998
<PAGE> 1
EXHIBIT 10.10
July 29, 1997 AUSPEX
Mr. Atts Kato
Nissho Electronics
3-1, Tsukiji 7-Chome
Chuo-ku Tokyo
104 Japan
Dear Kato-san:
EXCLUSIVITY CREDIT PROGRAM
Auspex agrees that it will pass credits to outstanding unpaid balances incurred
by Nissho Electronics or Auspex product purchases. The credits will be passed
within 21 days from the end of each calendar quarter and credit to be dated the
last day of the quarter. These equal quarterly credits will be [***] and will be
passed for a total of [***].
Each of these credits will be made regardless of the Nissho forecast or
percentage achievement against that forecast, except under the following
condition:
1. Nissho places orders below the minimum order floor of [***] total revenue
to Auspex Systems, Inc. (including equipment purchases and service revenue
and hence Auspex has generated insufficient funding contribution). Should
the floor of orders not be met the payment program will be extended as
described in exception condition below:
Should the order not be met, Auspex will delay the distribution of
the quarterly credit (equal to [***]), until a subsequent quarter.
Therefore, if there is one quarter in the calendar (July 1997 to
June 1998) where the credit is delayed, the program will then run
for fifteen months, (this process will continue until a total of (4)
four quarterly periods have elapsed where Auspex has passed credits
of [***] each). These payments win be the full and final
compensation due and payable by Auspex to Nissho for announcement of
Auspex exclusivity in Japan.
Agreed: I
Sincerely,
AUSPEX SYSTEMS, INC. Nishoectronics Dated
Auspex Systems, Inc. Dated
[***] Material omitted here, and filed with the Securities and Exchange
Commission, pursuant to a confidential treatment request.
<PAGE> 2
September 10, 1994
DISTRIBUTOR AGREEMENT - MODIFICATION
This Modification modifies the Distributor Agreement ("Agreement"), previously
signed between Auspex Systems, Inc. ("Auspex"), located at 5200 Great America
Parkway, Santa Clara, California, 95054, and Nissho Electronics Corporation
("Nissho"), located at attached as Attachment 1. This Modification is effective
as of an integral part of, and is indivisible from the Agreement.
In consideration of the mutual promises contained herein, the parties agree to
the following replacement and additional sections as follows:
2. Appointment and authority of Nissho
a. Appointment
Subject to the terms and conditions set forth herein, Auspex appoints
Nissho, as Auspex's non-exclusive distributor in the Territory for the
Products under Auspex's Trade name (as defined in Section 10), and Nissho
accepts such appointment; provided that Auspex may from time to time
appoint additional Distributors, Resellers and Systems Integrators in the
Territory. Additionally, Auspex may from time to time appoint licensees in
the Territory who shall have the right to manufacture Products in the
Territory, purchase Products (in whole or in part) from Auspex, and to
sell the Products under Trademarks owned or licensed by such licensee, and
not under the Auspex trademark.
(ii) Deleted
(iii) Nothing in this agreement shall restrict Auspex from selling Products to
any OEM or other customer outside of the Territory for resale or use
within the Territory.
Page 2
<PAGE> 1
EXHIBIT 10.30
AUSPEX SYSTEMS, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into by and between Bruce N. Moore (the "Employee") and Auspex Systems,
Inc., a Delaware corporation (the "Company"), effective as of June 16 1999 (the
"Effective Date").
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon Employee's termination of employment following a
Change of Control which provides the Employee with enhanced financial security
and provides incentive and encouragement to the Employee to remain with the
Company notwithstanding the possibility of a Change of Control.
D. The Board also wishes to provide Employee with certain severance
benefits in the event of his termination of employment under certain
circumstances not associated with a Change of Control.
E. Certain capitalized terms used in the Agreement are defined in 6
below.
The parties hereto agree as follows:
1. Term of Agreement. This Agreement shall terminate upon the date that
all obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available
<PAGE> 2
in accordance with the Company's established employee plans and practices or
pursuant to other agreements with the Company.
3. Severance Benefits.
(a) Severance Benefits Associated with a Change of Control. If the
Employee's employment terminates after a Change of Control under the
circumstances described below in this Section 3(a), the Employee shall be
entitled to the benefits set forth in this Section 3(a):
(i) Termination of Employment under Certain Circumstances
Immediately Following Change of Control. If, within thirty (30) days after a
Change of Control, the Employee's employment is (A) voluntarily terminated by
Employee for Good Reason (as defined herein), (B) involuntarily terminated by
the Company other than for Cause (as defined herein) or (C) terminated due to
Employee's death or "permanent and total disability" (as such term is defined
under Internal Revenue Code Section 22(e)(3) or its successor provision), the
Employee shall receive severance pay in the form of equal monthly payments
yielding in aggregate an amount equal to one hundred fifty percent (150%) of the
Employee's Annual Compensation (as defined herein).
(ii) Additional Severance Pay for Extended Service. If requested
to remain as an employee of the Company following a Change of Control and
Employee elects to do so, and if Employee's employment thereafter terminates for
any of the reasons specified in paragraph 3(a)(i) above, the Employee shall be
entitled to receive severance pay in the form of (A) monthly payments yielding
in aggregate an amount equal to one hundred fifty percent (150%) of the
Employee's Annual Compensation plus (B) one additional such monthly payment for
each month of continued employment following the Change of Control, up to a
maximum of twelve (12) additional payments, plus (C) a pro rata portion of the
bonus that would otherwise be payable to Employee for the year in which
termination occurs based on the number of full calendar months of his employment
subsequent to the Change of Control.
(b) Severance Benefits upon Termination of Employment not Associated with
a Change of Control. If the Employee's employment is terminated prior
to a Change of Control (as defined herein) or more than twenty-four (24) months
after a Change of Control for any of the reasons set forth below in this
paragraph 3(b), then the Employee shall be entitled to receive severance pay in
the form of equal monthly payments yielding in aggregate an amount equal to one
hundred fifty percent (150%) of the Employee's Annual Compensation (as defined
herein), plus a pro rata portion of the bonus that would otherwise be payable
to Employee for the year in which termination occurs based on the number of
full calendar months of his employment during the fiscal year in which
termination occurs. A termination of employment for any of the following
reasons shall trigger the severance benefits specified in this paragraph 3(b):
(A) voluntarily termination of employment by Employee for Good Reason (as
defined herein); (B) involuntarily termination of employment by the Company
other than for Cause (as defined herein); or (C) termination of employment due
to Employee's death or "permanent and total disability" (as such term is
defined under Internal Revenue Code Section 22(e)(3) or its successor
provision).
-2-
<PAGE> 3
(c) Timing of Severance Payments. Any severance payments to which
Employee is entitled under this Section 3 shall be paid by the Company to the
Employee (or to the Employee's successors in interest, pursuant to Section 7(b))
in cash installments with each installment being paid on or before the end of
each month-long period following the Termination Date (e.g. on each monthly
"anniversary" of the Termination Date).
(d) Medical Benefits. Employee shall be entitled to payment of
Employee's Consolidated Budget Reconciliation Act of 1985 ("COBRA") premiums
(the "Company-Paid Coverage") in the event Employee becomes entitled to receive
severance payments under either paragraph 3(a) or 3(b) above. If Employee's
health insurance coverage included Employee's dependents immediately prior to
the termination of employment, such dependents shall also be covered at
Company's expense. Company-Paid Coverage shall continue until the earlier of:
(a) the end of the Applicable Coverage Period (as defined below) or (b) the date
Employee becomes eligible for coverage under another employer's health insurance
plan. For purposes of Title X of COBRA, the date of the "qualifying event" for
Employee and his dependents shall be the date upon which Employee's employment
terminates. The "Applicable Coverage Period" for purposes of this Section
3(b)(iii) shall mean the period during which Employee receives severance
payments under either paragraph 3(b)(i) or 3(b)(ii).
(e) Voluntary Resignation other than for Good Reason; Termination
For Cause. If the Employee's employment terminates by reason of the Employee's
voluntary resignation other than for Good Reason, or if the Employee is
terminated involuntarily by the Company for Cause, then the Employee shall not
be entitled to receive severance or other benefits except for those (if any) as
may then be established under the Company's then existing severance and benefits
plans and practices or pursuant to other agreements with the Company.
(f) Contingent Obligations. The Company's obligation to pay the
severance payments, or any portion thereof remaining unpaid, set forth in this
Section 3 and pay the Company-paid Coverage set forth in Section 3(d) shall
terminate immediately in the event that Employee breaches any of Employee's
obligations set forth in Section 9 below.
4. Attorney Fees, Costs and Expenses. The Company shall promptly
reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs
and expenses incurred by the Employee in connection with any action brought by
Employee to enforce his rights hereunder, regardless of the outcome of the
action
5. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G (as it may be
amended or replaced) of the Internal Revenue Code of 1986, as amended or
replaced (the "Code") and (ii) but for this Section 5, would be subject to the
excise tax imposed by Section 4999 (as it may be amended or replaced) of the
Code (the "Excise Tax"), then the Employee's severance benefits hereunder
Section 3 shall be either
(a) delivered in full, or
-3-
<PAGE> 4
(b) delivered as to such lesser extent which would result in no
portion of such severance benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by the
Employee on an after-tax basis, of the greatest amount of severance benefits,
notwithstanding that all or some portion of such severance benefits may be
taxable under the Excise Tax. Unless the Company and the Employee otherwise
agree in writing, any determination required under this Section 5 shall be made
in writing in good faith by the accounting firm serving as the Company's
independent public accountants immediately prior to the Change of Control (the
"Accountants"). In the event of a reduction in benefits hereunder, the Employee
shall be given the choice of which benefits to reduce. For purposes of making
the calculations required by this Section 5, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of the Code.
The Company and the Employee shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.
6. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Annual Compensation. "Annual Compensation" means an amount equal to
the sum of Employee's (i) annual Company salary at the highest rate in effect in
the twelve months immediately preceding the Change of Control, and (ii) 100% of
the Employee's annual target bonus as in effect immediately prior to the Change
of Control.
(b) Cause. "Cause" shall mean either (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee and
intended to result in substantial personal enrichment of the Employee, (ii)
Employee's conviction of a felony, (iii) a willful act by the Employee which
constitutes gross misconduct and which is injurious to the Company, or (iv)
following delivery to the Employee of a written demand for performance from the
Company which describes the basis for the Company's belief that the Employee has
not substantially performed his duties, continued substantial violations by the
Employee of the Employee's obligations to the Company which are demonstrably
willful and deliberate on the Employee's part.
(c) Change of Control. "Change of Control" means the occurrence of any
of the following events:
(1) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act) ("Beneficial
Owner"), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the Company's
then outstanding voting securities;
-4-
<PAGE> 5
(2) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative vote of at least a
majority of the Incumbent Directors at the time of such election or nomination;
(i) The consummation of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or the entity that
controls the Company or controls such surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity or the entity that controls the Company or
controls such surviving entity outstanding immediately after such merger or
consolidation; or
(ii) The consummation of the sale or disposition by the Company
of all or substantially all of the Company's assets.
(d) Good Reason. "Good Reason" shall mean (i) without the Employee's
express written consent, a material reduction of the Employee's duties, title,
authority or responsibilities, relative to the Employee's duties, title,
authority or responsibilities as in effect immediately prior to such reduction,
or the assignment to Employee of such reduced duties, title, authority or
responsibilities; provided, however, that a reduction in duties, title,
authority or responsibilities solely by virtue of the Company being acquired and
made part of a larger entity (as, for example, when the Chief Financial Officer
of Auspex remains as such following a Change of Control and is not made the
Chief Financial Officer of the acquiring corporation) shall not constitute "Good
Reason;" (ii) without the Employee's express written consent, a material
reduction, without good business reasons, of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to such reduction; (iii) a reduction by the Company in the base salary of
the Employee as in effect immediately prior to such reduction; (iv) a material
reduction by the Company in the kind or level of employee benefits, including
bonuses, to which the Employee was entitled immediately prior to such reduction
with the result that the Employee's overall benefits package is materially
reduced; (v) the relocation of the Employee to a facility or a location more
than thirty (30) miles from the Employee's then present location, without the
Employee's express written consent; (vi) any purported termination of the
Employee by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; (vii)
the failure of the Company to obtain the assumption of this agreement by any
successors contemplated in Section 7(a) below; or (viii) any act or set of facts
or circumstances which would, under California case law or statute constitute a
constructive termination of the Employee.
(e) Termination Date. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, thirty (30) days after
notice of termination is given to the Employee (provided that the Employee shall
not have returned to the performance of the Employee's duties on a full-time
basis during such thirty (30)-day period), (ii) if the Employee's employment is
terminated by the Company for any other reason, the date on which a notice of
termination is given,
-5-
<PAGE> 6
provided that if within thirty (30) days after the Company gives the Employee
notice of termination, the Employee notifies the Company that a dispute exists
concerning the termination or the benefits due pursuant to this Agreement, then
the Termination Date shall be the date on which such dispute is finally
determined, either by mutual written agreement of the parties, or a by final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected), or (iii)
if the Agreement is terminated by the Employee, the date on which the Employee
delivers the notice of termination to the Company.
7. Successors.
(a) Company's Successors. Any successor to the Company (whether direct
or indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 7(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notice.
(a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause or
by the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Employee to include in the notice any
fact or circumstance which contributes to a showing of Involuntary Termination
shall not waive any right of the Employee hereunder or preclude the Employee
from asserting such fact or circumstance in enforcing his rights hereunder.
-6-
<PAGE> 7
9. Employee Obligations. Notwithstanding any other obligations of
Employee to Company following his termination from the Company and pursuant to
any other agreements, Employee hereby agrees that he shall be bound by the
following restrictions for a period of two (2) years from the Termination Date:
(a) Non-Solicitation.
(i) Employee agrees that he shall not either directly or
indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire
any employee of the Company or cause an employee to leave their employment
either for Employee or for any other entity or take any action which is intended
to induce any independent contractor, customer or supplier of the Company to
terminate his, her or its relationship with the Company; and
(ii) Employee agrees that he shall not interfere in any manner
that is injurious to the Company with the contractual or employment relationship
between the Company or any affiliated corporation and any employee, independent
contractor, customer or supplier of the Company or any affiliated corporation.
(b) Non Disparagement. The Employee agrees to refrain from any
defamation, libel or slander of the Company, or tortious interference with the
contracts and relationships of the Company.
(c) Non-Competition. The Employee shall not directly or indirectly
engage in (whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in or participate in the financing,
operation, management or control of, any person, firm, corporation or business
that engages in the "Restricted Business" in a "Restricted Territory" (as such
terms are defined below). It is agreed that ownership of no more than 1% of the
outstanding voting stock of a publicly traded corporation, or (ii) any stock
owned as of the date hereof by Employee shall not constitute a violation of this
provision. As used in this Section 9(c), the term "Restricted Business" means
any business involving [the development, distribution and support of network
file/data servers and/or network data management products] conducted or proposed
to be conducted by the Company or any of its subsidiaries at the time Employee's
employment with the Company terminates, and "Restricted Territory" means the
[counties, cities or states of the United States of America].
Employee represents that he (i) is familiar with the covenants not to
solicit, not to disparate and not to compete, and (ii) is fully aware of his
obligations hereunder, including, without limitation, the reasonableness of the
length of time, scope and geographic coverage of these covenants.
10. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that the Employee may receive from any other
source.
-7-
<PAGE> 8
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof except for the third paragraph of the offer
letter (the "Offer Letter") between the Company and Employee dated June 7, 1995,
which is hereby cancelled and superceded in its entirety. This Agreement
represents the entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior arrangements and understandings
regarding same.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(f) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes to the extent
required by law.
(g) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
-8-
<PAGE> 9
WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year set
forth above.
COMPANY AUSPEX SYSTEMS, INC.
By:
--------------------------------------
R. Stephen Cheheyl
By:
--------------------------------------
W. Frank King, Ph.D.
By:
--------------------------------------
Dorothy Krier, Vice President,
Human Resources
EMPLOYEE
--------------------------------------
Bruce N. Moore
-9-
<PAGE> 1
EXHIBIT 10.31
July 10, 1997
AGREEMENT NO.: SSA______
Page 1 of 9
SOFTWARE SUPPORT AGREEMENT
AT&T Corp. (AT&T), a New York corporation having a place of business at 32
Avenue of the Americas, New York, New York, 10013-2412, U.S.A. and Auspex
Systems Inc., having a principal office at, for itself and its SUBSIDIARIES
(collectively referred to herein as LICENSEE) agree that, after execution of
this Agreement by LICENSEE and acceptance of this Agreement by AT&T, the terms
and conditions set forth in this Agreement shall apply to AT&T's Basic Service
that become subject to this Agreement.
Such Services shall become subject to this Agreement on acceptance by AT&T of a
Supplement executed by LICENSEE that identifies (i) the particular Services and
associated charges; (ii) the particular AT&T SOFTWARE PRODUCT(S) to which such
Services apply; (iii) the applicable SITE CONTACT; and (iv) any other terms and
conditions which are to apply with respect to the Services and SOFTWARE PRODUCTS
listed in the applicable Supplement. Initially, Supplement(s) No. 01 are
included in and made part of this Agreement. Additional Supplements may be added
to this Agreement to include additional Services, SITE CONTACTS and/or SOFTWARE
PRODUCTS or to add or replace Services, SITE CONTACTS and/or SOFTWARE PRODUCTS
covered by previous Supplements. Each such additional Supplement shall be
considered part of this Agreement when executed by LICENSEE (if required) and
accepted by AT&T.
AGREED TO:
AUSPEX SYSTEMS, INC. AT&T
<PAGE> 2
July 10, 1997 AGREEMENT NO.: SSA_____
Page 2 of 9
1. DEFINITIONS
1.1. AT&T TECHNICAL SUPPORT - The single point of contact for all
support correspondence relating to a specific SOFTWARE PRODUCT.
Contact information is provided in the Supplement for the product
covered.
1.2. BEST EFFORT - Commercially reasonable efforts with consideration
given to the circumstances and consequences.
1.3. COMPUTER PROGRAM - Any instruction or instructions, in source code
or object format, for controlling the operation of a CPU.
1.4. DOCUMENTATION - Manuals and other documentation necessary for a
customer to install and use a SOFTWARE PRODUCT.
1.5. FIX - The collection of additional or replacement lines of source
code or documentation written to remedy a PROBLEM with a SOFTWARE
PRODUCT.
1.6. HOURS OF COVERAGE: Specified in Supplement for product covered.
1.7. MAINTENANCE UPDATES - Maintenance updates are made up of software
fixes to reported problems provided from time to time by AT&T which
will consist of the following:
1.7.1. Distributions of a SOFTWARE PRODUCT designated by AT&T as a
change in the digits to the right of the decimal [x.(yz)]
in the SOFTWARE PRODUCT and version number. Such an
additional distribution shall be called an Update Release.
1.7.2. New or modified DOCUMENTATION or information regarding such
DOCUMENTATION.
1.8. OTHER ASSISTANCE - Includes all questions and service requests
regarding the function and operation of the SOFTWARE PRODUCT, and
response to queries with regard to urgent bugs which may have been
encountered.
1.9. PROBLEMS - Deviations from the specifications of any SOFTWARE
PRODUCT. Two types of problems can exist:
1.9.1. PROBLEMS in a SOFTWARE PRODUCT
1.9.2. PROBLEMS in the DOCUMENTATION of the SOFTWARE PRODUCT
1.10. REMEDIAL ASSISTANCE - Includes the furnishing of FIXES and/or
WORKAROUNDS to reported PROBLEMS that are demonstrable on
unmodified source code that render a SOFTWARE PRODUCT substantially
unusable. FIXES and/or WORKAROUNDS for less severe PROBLEMS will be
provided at the discretion of AT&T.
1.11. SEVERITY DEFINITION:
1.11.1. LEVEL 1 - Problem has a critical impact for a LICENSEE's
customer to the point that the problem renders a system
non-functional, including but not limited to occurrence of
data corruption, or in LICENSEE's development, no further
work can be done until the problem is resolved. A maximum
effort will take place until the problem is solved and FIX
delivered to LICENSEES' development organization.
<PAGE> 3
July 10, 1997 AGREEMENT NO.: SSA_____
Page 3 of 9
1.11.2. LEVEL 2 - Problem is causing a major loss in productivity
for a LICENSEE's end user for which a WORKAROUND is
available and in LICENSEE's development, a problem that
affects the scheduled release of a LICENSEE's end user
product. FIX will be delivered to LICENSEES' development
organization or scheduled into a maintenance release.
Delivery will be scheduled based on complexity of
development and system test required to ensure quality.
1.11.3. LEVEL 3 - Problem has minor impact on the user community
and causes little or no loss of productivity. Problem will
be worked and scheduled into the next version release at
AT&T's option or a fix or WORKAROUND will be provided to
the customer for the existing version release.
1.11.4. LEVEL 4 - Reports that are classified enhancements or
design changes that require review by Systems Engineering.
1.12. SITE CONTACT - LICENSEES designated point of contact with AT&T
TECHNICAL SUPPORT under this Agreement.
1.13. SOFTWARE AGREEMENT - An Agreement between LICENSEE and AT&T
authorizing LICENSEE to use a SOFTWARE PRODUCT.
1.14. SOFTWARE PRODUCT - Materials such as COMPUTER PROGRAMS, information
used or interpreted by computer programs and documentation relating
to the use of computer programs. Materials available from AT&T for a
specific SOFTWARE PRODUCT are listed in the Supplement for such
SOFTWARE PRODUCT.
1.15. STANDARD OBJECTIVE RESPONSE TIME - For Basic Service, the Standard
Objective Response Time is defined as the elapsed time from the time
AT&T TECHNICAL SUPPORT receives notification until it acknowledges
receipt of said PROBLEMS and the result of AT&T's efforts to
reproduce the problem.
1.16. WORKAROUND - A procedure by which a user can, by a limited number of
user changes that do not require delivery of software to avoid a
reported PROBLEM.
1.17. VERSION RELEASE of a product means a release designated by the
licensor of the product as a change in the digit to the left of the
decimal [(x).yz] in the product version number.
2. ELIGIBILITY FOR SERVICES
To be eligible for Services for a SOFTWARE PRODUCT, LICENSEE must meet the
following requirements:
2.1. LICENSEE has a valid SOFTWARE AGREEMENT for the SOFTWARE PRODUCT;
2.2. LICENSEE has a single contact knowledgeable in the SOFTWARE PRODUCT;
2.3. LICENSEE's PROBLEMS must be demonstrable on unmodified source code
on a system configuration supported by the AT&T reference system.
2.4. LICENSEE agrees that the obligation of AT&T to continue to provide
Services with respect to a SOFTWARE PRODUCT shall terminate if, at
any time during the Term of the applicable Supplement, any
additional eligibility requirements specified in such Supplement
relating to
<PAGE> 4
July 10, 1997 AGREEMENT NO.: SSA_____
Page 4 of 9
Services for such SOFTWARE PRODUCT are not met. Nothing in this
Agreement shall be construed to obligate AT&T to make available to
LICENSEE support for a SOFTWARE PRODUCT during the entire term of
the applicable SOFTWARE AGREEMENT for such SOFTWARE PRODUCT.
3. BASIC SOFTWARE SUPPORT DESCRIPTION
Basic Software Support Service ("Basic Service") - Provides REMEDIAL
ASSISTANCE, MAINTENANCE UPDATES and/or OTHER ASSISTANCE during the HOURS
OF COVERAGE.
4. REQUESTS FOR BASIC SUPPORT
Requests by LICENSEE for Services pursuant to this Agreement shall be made
by contacting AT&T TECHNICAL SUPPORT at the email address or facsimile
number designated in Appendix A. LICENSEE may change its authorized
designated Customer Site Contact upon ten (10) days prior written notice
to AT&T. Only the designated LICENSEE Customer Site Contact(s) may
initiate contact with AT&T Technical Support.
5. RESPONSE TIME FOR BASIC SUPPORT
5.1. For Basic Service, the STANDARD OBJECTIVE RESPONSE TIME will be:
5.1.1. Level 1: Within 24 hours.
5.1.2. Level 2: Within 48 hours.
5.1.3. Level 3: Within 5 days.
5.1.4. Level 4: Within 10 days.
5.2. For Basic Service AT&T will work to provide FIXES and WORKAROUNDS
according to the following criteria:
5.2.1. LEVEL 1 & 2: AT&T will use its best efforts to provide a
FIX or WORKAROUND and that AT&T will work continuously to
provide a FIX or WORKAROUND.
5.2.2. LEVEL 3 & 4: AT&T will provide a FIX or WORKAROUND at its
discretion.
6. PREMIER SUPPORT:
6.1 AT&T will provide the following additional support to the
LICENSEE in consideration for the fee supplement outlined in the SOFTWARE
SUPPORT AGREEMENT AND SCHEDULE.
6.1.2 AT&T agrees to provide to LICENSEE four days of training at
the customer site. This will consist of two days of training for
LICENSEE's developers and two days of training for LICENSEE's test
personnel. LICENSEE agrees to pay all travel and living expenses for
AT&T's training representatives.
6.1.3 AT&T agrees to provide to LICENSEE one hour per week of
telephone consultation during LICENSEE's program development phase and
only to representatives that are par of the LICENSEE's program
development group. This will terminate once the LICENSEE releases a
commercially available product offering based on the SOFTWARE PRODUCT.
6.1.4 AT&T will provide to LICENSEE's product support engineers up
to 8 hours of telephone consultation each month. Such time cannot be
accumulated to exceed the 8 hour per
<PAGE> 5
July 10, 1997 AGREEMENT NO.: SSA_____
Page 5 of 9
month maximum. Telephone support will not exceed 72 hours during the
twelve month period this agreement is in effect.
7 SOFTWARE SUPPORT EXCLUSIONS
Notwithstanding anything in this Agreement to the contrary and unless
expressly agreed to by AT&T, Services to be provided under this Agreement
do not include and charges quoted by AT&T do not include:
7.1 Support of a SOFTWARE PRODUCT which has been modified by other than
AT&T on the LICENSEE's operating system environment and hardware
platform.;
7.2 Making specification changes or performing services connected with
relocation of a SOFTWARE PRODUCT;
7.3 Modification or replacement of a SOFTWARE PRODUCT, repair of damage
or increase in service time caused by failure to continually
provide a suitable operational environment with all facilities
prescribed by the applicable manual including, but not limited to,
the failure to provide, or the failure, of adequate electrical
power, temperature control or humidity control;
7.4 Modification or replacement of a SOFTWARE PRODUCT, repair of damage
or increase in service time caused by the use of a SOFTWARE PRODUCT
for other than the purposes for which it is licensed, or not in
accordance with AT&T operating guidelines;
7.5 Modification or replacement of a SOFTWARE PRODUCT, repair of damage
or increase in service time caused by accident; disaster, which
shall include, but not be limited to fire, flood, water, wind and
lightening; transportation; neglect or misuse; modifications,
maintenance or repairs performed by other than AT&T;
7.6 Support of any SOFTWARE PRODUCT not listed in a Supplement hereto
or support of interfaces to any such SOFTWARE PRODUCT;
7.7 Modification or replacement of a SOFTWARE PRODUCT or increase in
service time caused by the use of a SOFTWARE PRODUCT in combination
with other software or materials not furnished by AT&T, or in
combination with other software or materials furnished, but not
combined by AT&T;
7.8 Work external to a SOFTWARE PRODUCT, whether or not on such
SOFTWARE PRODUCT's DESIGNATED CPU as defined in the SOFTWARE
AGREEMENT.
8. SUPPORT OF RELOCATED SOFTWARE
If authorized under the terms of a Software Agreement, LICENSEE may
relocate a SOFTWARE PRODUCT to a different CPU of a configuration on
which the SOFTWARE PRODUCT can be supported by AT&T. Support will
continue to be provided on relocated SOFTWARE PRODUCT as long as LICENSEE
notifies AT&T, in writing and within ten (10) business days of the
SOFTWARE PRODUCT'S relocation.
9. OBLIGATIONS OF LICENSEE
9.1 LICENSEE must provide AT&T with information sufficient for AT&T to
duplicate the circumstances under which a PROBLEM in a SOFTWARE
PRODUCT became apparent.
<PAGE> 6
July 10, 1997 AGREEMENT NO.: SSA_____
Page 6 of 9
9.2 All communication by LICENSEE to AT&T must be in the English
Language.
10. MAINTENANCE UPDATES AND FIXES
LICENSEE agrees that all MAINTENANCE UPDATES and FIXES furnished to
LICENSEE with respect to a SOFTWARE PRODUCT shall be deemed to be part of
such SOFTWARE PRODUCT subject to the terms and conditions of the SOFTWARE
AGREEMENT for the SOFTWARE PRODUCT.
11. TERM
Each Supplement to this Agreement:
11.1 Shall have an initial term of one (1) year commencing on the date
indicated on each such Supplement ("Initial Term") and
11.2 Shall be automatically renewed for successive one (1) year terms at
AT&T's then current rates for the selected Services, unless and
until terminated by either party by written notice to the other at
least sixty (60) days prior to the expiration of the Initial Term
or any then current renewal thereof. If AT&T's rates for any
selected Services shall be increased for any renewal term, LICENSEE
may, no later than thirty (30) days from receipt of notice of such
increase, elect to terminate such Services by written notice to
AT&T. As used herein, "Term" shall mean the Initial Term and any
renewals thereof.
12. PRICE, PAYMENT AND INVOICES
12.1 The price for Basic Service is calculated on an annual basis and is
based on the SOFTWARE PRODUCT. Prices are shown in the Supplement
to this Agreement for each covered SOFTWARE PRODUCT and are payable
within thirty (30) days from the date of each invoice which will be
submitted by AT&T during the Term hereof, whether or not LICENSEE
requests Service hereunder, unless otherwise specified.
12.2 Payments provided for in this Agreement shall, when overdue, be
subject to a late payment charge calculated at a rate of three
percent (3%) per month until paid; provided, however, that if the
amount of such late payment charge exceeds the maximum permitted by
law for such charge, such charge shall be reduced to such amount.
13. TERMINATION AND DEFAULT
13.1 If LICENSEE fails to pay any invoice in full within a period of
thirty (30) days after the same is due and such failure continues
for a period of ten (10) days after AT&T gives notice to LICENSEE
thereof, then, in addition to all other rights and remedies at law
or otherwise, AT&T shall have the right to terminate this Agreement
upon thirty (30) days notice to LICENSEE without any liability to
AT&T whatsoever.
13.2 Except for LICENSEE's failure to make payments, as herein above set
forth, either party may terminate this Agreement on notice if the
other party has defaulted in the performance of its obligations
under this Agreement, has breached any material provision of this
Agreement, or becomes insolvent, invokes as a debtor any laws
relating to the relief of debtors' or creditors' rights, or has
such laws invoked against it as a debtor. Such termination shall be
effective thirty (30) days after notice, unless such default or
breach has been cured or the terminating party is satisfied with
the other party's solvency within that time.
<PAGE> 7
July 10, 1997 AGREEMENT NO.: SSA_____
Page 7 of 9
14. WARRANTY
AT&T warrants to LICENSEE that Services hereunder will be performed in a
professional manner and in accordance with good usage and accepted
practices as established in the community in which such Services are
performed. If such Services prove to be not so performed, and if LICENSEE
notifies AT&T within a ninety (90) day period commencing on the date of
completion of the Service, AT&T will, at its option, either correct any
defects and deficiencies for which it is responsible or render prorated
refund or credit based on the original charge for the Services.
THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER EXPRESS
AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. LICENSEE'S SOLE AND
EXCLUSIVE REMEDY RELATIVE TO WARRANTY SHALL BE AT&T'S OBLIGATION TO MAKE
CORRECTIONS OR GIVE CREDIT OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY.
15. LIMITATION OF LIABILITY
AT&T SHALL IN NO EVENT BE LIABLE TO LICENSEE, OR ANY PERSON OR ENTITY
USING ANY SERVICE SUPPLIED UNDER THIS AGREEMENT, FOR LOSS OF TIME,
INCONVENIENCE, LOSS OF USE OF ANY SOFTWARE PRODUCT OR EQUIPMENT OR
PROPERTY DAMAGE CAUSED BY ANY SOFTWARE PRODUCT OR EQUIPMENT OR THEIR
FAILURE TO WORK, OR FOR ANY OTHER INDIRECT, SPECIAL, RELIANCE, INCIDENTAL
OR CONSEQUENTIAL LOSS OR DAMAGE ARISING OUT OF THIS AGREEMENT OR ANY
OBLIGATION RESULTING THEREFROM, OR THE USE OR PERFORMANCE OF ANY SOFTWARE
OR PRODUCTS WHETHER IN AN ACTION FOR OR ARISING OUT OF ALLEGED BREACH OF
WARRANTY, ALLEGED BREACH OF CONTRACT, DELAY, NEGLIGENCE (ACTIVE OR
PASSIVE), STRICT TORT LIABILITY OF OTHERWISE. AT&T'S ENTIRE LIABILITY FOR
ANY CLAIM OR LOSS, DAMAGE, OR EXPENSE FROM ANY CAUSE WHATSOEVER SHALL IN
NO EVENT EXCEED THE PERFORMANCE, REPAIR OR REPLACEMENT COST, OR PURCHASE
PRICE AT AT&T'S OPTION, OF THE SERVICE OR ITEM WHICH DIRECTLY GIVES RISE
TO THE CLAIM. NO ACTION OR PROCEEDING AGAINST AT&T MAY BE COMMENCED MORE
THAN TWO (2) YEARS AFTER THE SERVICES ARE COMPLETED. THIS PARAGRAPH SHALL
SURVIVE FAILURE OF AN EXCLUSIVE REMEDY.
16. NONWAIVER
No course of dealing, course of performance, or failure of either party
strictly to enforce any term, right or condition of this Agreement shall
be construed as a waiver of any term, right, or condition. No waiver of
breach of any provision of this Agreement shall be construed to be a
waiver of any subsequent breach of the same or any other provision.
17. FORCE MAJEURE
Except with respect to LICENSEE's obligation to make timely payments,
neither party shall be held responsible for any delay or failure in
performance to the extent that such delay or failure is caused by fires,
strikes, embargoes, explosions, earthquakes, floods, wars, water, the
elements, labor disputes, government requirements, civil or military
authorities, acts of God or by the public enemy, inability to secure raw
materials or transportation facilities, acts or omissions of carriers or
suppliers, or other causes beyond its control whether or not similar to
the foregoing.
18. CHOICE OF LAW
The construction, interpretation, and performance of, and all transactions
under this Agreement, shall be governed by the substantive, but not the
conflicts, law of the State of California
<PAGE> 8
July 10, 1997 AGREEMENT NO.: SSA_____
Page 8 of 9
19. ENTIRE AGREEMENT
The terms and conditions contained in this Agreement supersede all prior
oral or written understandings between the parties, shall constitute the
entire agreement between the parties with respect to the subject matter of
this Agreement and shall not be contradicted, explained or supplemented by
any course of dealing between AT&T or any of its affiliates and LICENSEE
or any of its affiliates. AT&T employees' statements and AT&T
advertisements or descriptions other than its published specifications do
not constitute warranties or other contractual obligations, and shall not
be relied upon by LICENSEE as such. This Agreement shall not be modified
or amended except by a writing signed by an authorized representative of
both parties.
20. ASSIGNMENT
This Agreement may not be assigned by LICENSEE without the prior written
consent of AT&T.
21. PARTIES BOUND
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective legal representatives, heirs,
successors and assignees.
22. NOTICE
22.1 All notices under this Agreement (except for requests for Service)
shall be in writing and shall be given by telegram or similar
communication, or by Certified mail, postage prepaid addressed to
LICENSEE or to AT&T at the address listed in Section WRITTEN
NOTICES, or to such other address as either party may designate by
notice pursuant hereto. Such notice shall be deemed to have been
given when received.
22.2 Any statement, notice, request or other communication shall be
deemed to be sufficiently given to addressee and any delivery
hereunder deemed made when sent by certified mail addressed to
LICENSEE at its office specified in the Agreement or to AT&T at the
appropriate address specified in this section.
22.3 Each party to this Agreement may change an address relating to it
by written notice to the other party.
23. SEVERABILITY
If any paragraph, or clause thereof, in this Agreement shall be held to
be invalid or unenforceable in any jurisdiction in which this Agreement
is being performed, then the meaning of such paragraph or clause shall be
severed from this Agreement and the remainder shall remain in full force
and effect. However, in the event such paragraph or clause is considered
an essential element of this Agreement, the parties shall promptly
negotiate a replacement thereof. If the parties are unable to agree upon
a replacement term within thirty (30) days of the final ruling rendering
such term invalid or unenforceable, either party may terminate this
Agreement upon ten (10) days prior written notice.
24. TAXES
Any tax or related charge resulting from this Agreement or any activities
hereunder, exclusive of any tax based on or measured by net income, which
AT&T shall be required to pay or collect for any government shall be
billed to LICENSEE as a separate item and shall be paid by LICENSEE,
unless a valid exemption certificate is furnished by LICENSEE to AT&T.
<PAGE> 9
July 10, 1997 AGREEMENT NO.: SSA_____
Page 9 of 9
25. WRITTEN NOTICES AND PAYMENTS
Payments to AT&T relating to this Agreement shall be sent to:
AT&T
P.O. Box 93483
Chicago, IL 60673
Correspondence with AT&T relating to this Agreement shall be sent to:
AT&T
OEM Business Manager
Room 2A361
1100 E. Warrenville Road
Naperville, IL 60566
Correspondence with LICENSEE relating to this Agreement shall be sent to:
General Counsel,
Auspex Systems
5200 Great America Parkway
Santa Clara, CA 95054
<PAGE> 1
EXHIBIT 10.32
Licensee: Auspex Systems, Inc.
Agreement Number: SA-AUSPEX060997
AMENDMENT NO. 1 TO SOFTWARE LICENSING AGREEMENT
BETWEEN LICENSEE & AT&T
This Amendment shall amend the Software Licensing Agreement between LICENSEE
and AT&T as follows:
1. The last line of Section 1.6 of the License Agreement will be deleted.
2. In Section 2 of Supplement 01 to the License Agreement, "Host
Processors" is changed to "FMP Architecture".
3. In Section 3 of Supplement 01 to the License Agreement, paragraph 1 is
changed to: "'Derivative Works' means the port of the AT&T Advanced
Server for UNIX Version 4.X to SunOS and Solaris running on LICENSEE's
FMP Architecture (which includes all processors). It is understood and
agreed that LICENSEE's FMP Architecture includes a number of processors
(e.g., host processor, network/file processor) and that AT&T Advanced
Server for UNIX Version 4.X may be ported in the form of one or more
modules operating on one or more such processors, and, further, that the
port of each module may include modified AT&T programming code and/or
new programming code based upon the functionality of the AT&T code.
4. Paragraph 2 in Section 3 of Supplement 01 to the License Agreement will
be deleted.
5. In Section 1.2.1. of Exhibit 1-A of the License Agreement, the "CLASS"
designation is changed to "UNLIMITED KIT FOR FMP ARCHITECTURE".
6. In Section 1.3. of Exhibit 1-A of the License Agreement:
1. In the second line, "Host Processor" is changed to "FMP
Architecture".
2. The following is added at the end of this section: "It is
understood and agreed that (i)LICENSEE's FMP Architecture
includes a number of processors (e.g., host processor, network/file
processor) and that the DERIVED BINARY PRODUCT may be separated into
more than one module with different modules running on different
processors; and (ii) the combination of such modules on such
processors shall constitute a single KIT for purposes of computing
the binary distribution fee pursuant to Section 1.2 above."
7. In Section 5 of Supplement 01 of the Software Licensing Agreement, the
DESIGNATED SITE for the AT&T SOURCE SOFTWARE is changed to: 2300 Central
Expressway, Santa Clara, CA 95050.
8. An additional DESIGNATED SITE for the AT&T SOURCE SOFTWARE will be:
Auspex KK
ATT Shin-kan 6F
2-11-7 Akasaka, Minato-ku
Tokyo 107-0052 Japan
This Amendment to the Software Licensing Agreement is attached to and made a
part of the above referenced Agreement. Execution and acceptance of such
Agreement also constitutes execution and acceptance of this Supplement and
Exhibits.
Auspex Systems, Inc. AT&T Corp.
By: By:
- --------------------------------- ------------------------------------
(Signature) (Signature)
Len LuPriore
- ---------------------------------- -------------------------------------
(Type or print name) (Type or print name)
Director
- ---------------------------------- -------------------------------------
(Title) (Title)
- ---------------------------------- -------------------------------------
(Date) (Date)
<PAGE> 2
Software Licensing Agreement
between
Auspex Systems Inc.
and
AT&T Corp.
AT&T CONFIDENTIAL
<PAGE> 3
June 3, 1997
AGREEMENT NO.: SA-_____
SOFTWARE LICENSING AGREEMENT
BETWEEN LICENSEE & AT&T
Software Agreement. Page ii
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
1. DEFINITIONS .....................................................................2
2. LICENSEE USE RIGHTS .............................................................3
3. LICENSEE MANUFACTURING RIGHTS ...................................................4
4. LICENSEE DISTRIBUTION LICENSES ..................................................4
5. LICENSEE DESIGNATED SITES .......................................................7
6. LICENSEE CONTRACTORS ............................................................7
7. DELIVERY BY AT&T............................................................ ....8
8. ACCEPTANCE BY LICENSEE ..........................................................8
9. EXPORT BY LICENSEE ..............................................................8
10. LICENSEE LICENSE FEES AND TAXES .................................................9
11. LICENSEE BINARY DISTRIBUTION FEE REPORTS AND PAYMENTS ...........................9
12. LICENSEE RECORDS AND AUDIT .....................................................10
13. TERM AND TERMINATION ...........................................................11
14. AT&T WARRANTY AND INDEMNIFICATION ..............................................12
15. SUPPORT ........................................................................13
16. CONFIDENTIALITY AND USE ........................................................13
17. MISCELLANEOUS ..................................................................14
</TABLE>
SUPPLEMENTS
Supplement 01 - Advanced Server for UNIX Systems
EXHIBITS
Exhibit 1 - A Schedule for AT&T Advanced Server for UNIX Systems
AT&T CONFIDENTIAL
<PAGE> 4
June 3, 1997 AGREEMENT NO.:
Software Agreement. Page 1 of 15
SOFTWARE LICENSING AGREEMENT
This Software Licensing Agreement is between AT&T Corp., acting for itself and
its AFFILIATES (collectively, "AT&T"), and Auspex Systems Inc., acting for
itself and its AFFILIATES (collectively, "LICENSEE"). AT&T will license AT&T
SOFTWARE PRODUCTS to LICENSEE. On the terms of this Agreement, LICENSEE will
become a source code licensee of certain AT&T SOFTWARE PRODUCTS, and will be
entitled to directly and indirectly distribute certain AT&T SOFTWARE PRODUCTS in
binary code form to end users. The attached Supplement 01 describes the initial
AT&T SOFTWARE PRODUCTS licensed to LICENSEE. The parties may, from time to time,
add other AT&T SOFTWARE PRODUCTS to this Agreement by executing one or more
additional Supplements.
Pages 2 through 15, Supplement 01 and Exhibit -1 A are a part of this Agreement.
This Agreement sets forth the entire agreement between LICENSEE and AT&T
concerning these subjects and merges all prior discussions and writings between
them. Neither LICENSEE nor AT&T shall be bound by any conditions, definitions,
warranties, understandings, or representations with respect to these subjects,
other than as expressly provided in this Agreement or as set forth on or after
the date of execution of this Agreement in writing and signed by an authorized
representative of the party to be bound. No preprinted term appearing in any
document originated by one party shall be enforceable against the other party
unless that term is expressly accepted in writing by an authorized
representative of the party to be bound.
AGREED TO:
AT&T CONFIDENTIAL
<PAGE> 5
June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 2 of 15
1. DEFINITIONS
1.1. AFFILIATE means (i) in the case of AT&T, any AT&T SUBSIDIARY; AT&T's
parent, AT&T Corp.; and any AT&T Corp. SUBSIDIARY agreeing in writing to
be bound by this Agreement; and (ii) in the case of LICENSEE, any
LICENSEE SUBSIDIARY.
1.2 AUTHORIZED COPIER means a DISTRIBUTOR authorized to make copies of
LICENSEE SOFTWARE PRODUCTS or AT&T SOFTWARE PRODUCTS.
1.3. CLIENT means an end user computer in a local area network.
1.4. COMPUTER means a central processing unit and associated memory or other
peripheral devices.
1.5. COMPUTER PROGRAM means any instruction or instructions that runs on or
in conjunction with a COMPUTER, in source-code, object-code, load
executable, or other form.
1.6. DERIVATIVE WORK means a work which is based upon one or more preexisting
works, and which is a revision, modification, translation, abridgment,
condensation, expansion, collection, compilation, or any other form in
which such preexisting works may be recast, transformed, or adapted, and
which, if prepared without authorization by the owner of the preexisting
work, would constitute a copyright infringement. In this context, AT&T
and Licensee agree that Licensee developed networking and file system
software, neither based on nor containing AT&T SOFTWARE PRODUCT, running
on Licensee's network and file interface processors in Licensee's
servers, and providing companion functionality to AT&T's AS/U port
running on Licensee's host processor does not constitute a "Derivative
Work".
1.7. DESIGNATED SITE means any location listed as such for specific AT&T
SOURCE SOFTWARE or LICENSEE SOURCE SOFTWARE in the applicable Supplement
to this Agreement.
1.8. DOCUMENTATION means electronic or paper copy information pertaining to
COMPUTER PROGRAMS.
1.9. EFFECTIVE DATE means June 5, 1997.
1.10. DISTRIBUTOR means a business entity which redistributes LICENSEE
components, hardware, or software, under an LICENSEE logo, or a business
entity authorized by LICENSEE or another LICENSEE DISTRIBUTOR to receive
copies of AT&T UNMODIFIED BINARY PRODUCTS or AT&T DERIVED BINARY
PRODUCTS from LICENSEE or another DISTRIBUTOR and to furnish such copies
to end user customers and/or DISTRIBUTORS.
1.11. AT&T DERIVED BINARY PRODUCT means a COMPUTER PROGRAM in object code
form, and DOCUMENTATION relating to the use of that COMPUTER PROGRAM,
which are DERIVATIVE WORKS prepared from AT&T SOURCE SOFTWARE.
1.12. AT&T SOFTWARE PRODUCT means one or more of the following as the context
requires: AT&T SOURCE SOFTWARE, AT&T UNMODIFIED BINARY PRODUCTS, or AT&T
DERIVED BINARY PRODUCTS.
1.13. AT&T SOURCE SOFTWARE means COMPUTER PROGRAMS, in source code form, and
DOCUMENTATION relating to those COMPUTER PROGRAMS, as listed in the
applicable Exhibits of the attached Supplements and provided to LICENSEE
by AT&T hereunder.
1.14. AT&T UNMODIFIED BINARY PRODUCT means a COMPUTER PROGRAM in object code
form and DOCUMENTATION related to the use of that COMPUTER PROGRAM, as
listed in the applicable Exhibits of the attached Supplements and
provided to LICENSEE by AT&T hereunder.
AT&T CONFIDENTIAL
<PAGE> 6
June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 3 of 15
1.15 KIT means an AT&T DERIVED BINARY PRODUCT, installed on one SERVER
configured to support a specified (or unlimited) number of concurrent
CLIENTS.
1.16 MULTIPROCESSOR means a COMPUTER having more than one CPU installed in
single cabinet and connected to the same computer bus or backplane.
1.17 SERVER means a COMPUTER which, at a minimum, supplies file and print
services to CLIENTS in a local area network.
1.18 SUBSIDIARY of a company means a corporation or other legal entity (i)
the majority of whose shares or other securities entitled to vote for
election of directors (or other managing authority) is now or hereafter
controlled by such company either directly or indirectly; or (ii) the
majority of the equity interest in which is now or hereafter owned and
controlled by such company either directly or indirectly; or which does
not have outstanding shares or securities, as may be the case in a
partnership, joint venture, or unincorporated association, but more than
50% of the ownership interest representing the right to make decisions
for such corporation, company, or other entity which is now or hereafter
owned and controlled by such company either directly or indirectly; but
any such corporation or other legal entity shall be deemed to be a
SUBSIDIARY of such company only so long as such control or such
ownership and control exists.
1.19 UPDATE RELEASE of a product means a release designated by the licensor
of the product as a change in the digits to the right of the decimal
[x.(yz)] in the product version number.
1.20 VERSION RELEASE of a product means a release designated by the licensor
of the product as a change in the digit to the left of the decimal
[(x).yz] in the product version number.
2. LICENSEE USE RIGHTS
2.1. Subject to all of the provisions of this Agreement, AT&T grants to
LICENSEE a nontransferable, and nonexclusive right to use, execute,
perform, and display AT&T SOURCE SOFTWARE specified in the applicable
Supplements, solely for LICENSEE's own internal development purposes and
solely at the DESIGNATED SITES for such AT&T SOURCE SOFTWARE. LICENSEE
is permitted to make a reasonable number of copies of AT&T SOURCE
SOFTWARE at each DESIGNATED SITE consistent with the development and
support functions of that DESIGNATED SITE and provided that a log is
maintained of such copies. Such right to use includes the right to
prepare or have prepared DERIVATIVE WORKS based on such AT&T SOURCE
SOFTWARE provided that any such DERIVATIVE WORK that contains or is
based on any part of the AT&T SOURCE SOFTWARE subject to this Agreement
is treated hereunder the same as such AT&T SOURCE SOFTWARE.
2.2. Subject to all of the provisions of this Agreement, AT&T grants to
LICENSEE worldwide, nontransferable, and nonexclusive rights to use,
copy, and combine each AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED
BINARY PRODUCT. No right is granted for, and LICENSEE is specifically
prohibited from, reverse assembling, reverse compiling, or otherwise
putting into human readable form, AT&T UNMODIFIED BINARY PRODUCTS or
preparing DERIVATIVE WORKS based on AT&T UNMODIFIED BINARY PRODUCTS.
2.3. LICENSEE's license shall extend only to the AT&T SOFTWARE PRODUCTS
specified in the applicable Supplements for such AT&T SOFTWARE PRODUCTS
and, for so long as LICENSEE pays the Annual Support Fee specified in
the applicable Software Support Agreement for those AT&T SOFTWARE
PRODUCTS, to all UPDATE RELEASES of those AT&T SOFTWARE PRODUCTS
provided in accordance with such Supplement. LICENSEE's license does not
extend to VERSION RELEASES of AT&T SOFTWARE PRODUCTS.
AT&T CONFIDENTIAL
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June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 4 of 15
2.4. The license rights granted by this Section 2. with respect to an AT&T
SOFTWARE PRODUCT are effective only upon (i) LICENSEE's acceptance of
that AT&T SOFTWARE PRODUCT under Section 8., (ii) LICENSEE's payment of
the right-to-use fee, if any, for that AT&T SOFTWARE PRODUCT specified
in the applicable Supplement for that AT&T SOFTWARE PRODUCT, and (iii)
any other terms and conditions in the applicable Supplement.
2.5. LICENSEE of AT&T SOURCE SOFTWARE shall not modify the code except as
required to adapt the same to the LICENSEE's computer systems, local
area network products, or significant valueadded software products.
LICENSEE shall own any such modifications, subject to its continuing
obligations as to DERIVATIVE WORKS.
2.6. No derivative work consisting of a translation of AT&T SOFTWARE PRODUCTS
into another language shall be made by or for LICENSEE without the prior
written approval of AT&T. In the event LICENSEE requests in writing from
AT&T a translated version of an AT&T SOFTWARE PRODUCT which will not be
available as an AT&T offering for a period of three (3) months from the
date of such request, both parties agree to negotiate in, good faith the
terms and conditions of an agreement for the development and licensing
of such a translation.
2.7. LICENSEE may prepare a DERIVATIVE WORK of the AT&T SOURCE SOFTWARE which
will operate on one of the porting hardware and operating system
environments identified in the Supplement for the product being
licensed. LICENSEE may request an addition to the environments at any
time. AT&T will not withhold consent to add any environment unless AT&T
has granted prior exclusive rights in the environment to a third party
or has decided to retain all rights in the environment on an exclusive
basis for itself. AT&T shall not be required to prove the existence of a
prior exclusive right or decision to retain exclusive rights in the
environment itself.
2.8 No title to any intellectual property in any AT&T SOFTWARE PRODUCT or
DERIVATIVE WORK is transferred to LICENSEE, LICENSEE'S DISTRIBUTOR, end
user or any other party.
3. LICENSEE MANUFACTURING RIGHTS
3.1. AT&T grants to LICENSEE non-transferable, worldwide, and non-exclusive
rights:
3.1.1. to reproduce or have reproduced copies of AT&T
UNMODIFIED BINARY PRODUCTS and AT&T DERIVED BINARY PRODUCTS;
and
3.1.2.to combine AT&T UNMODIFIED BINARY PRODUCTS and AT&T
DERIVED BINARY PRODUCTS with other COMPUTER PROGRAMS and
DOCUMENTATION.
4. LICENSEE DISTRIBUTION LICENSES
4.1. AT&T grants to LICENSEE non-transferable, worldwide, and non-exclusive
rights:
4.1.1. subject to the payments specified in Section 11., to furnish
copies of AT&T UNMODIFIED BINARY PRODUCTS or AT&T DERIVED
BINARY PRODUCTS either directly or through LICENSEE
DISTRIBUTORS and consistent with Section 9., to end user
customers anywhere in the world for use on end user customer
COMPUTERs; and
4.1.2. to use or allow others to use, including LICENSEE DISTRIBUTORS
and end users, without fee or royalty obligation to AT&T, AT&T
UNMODIFIED BINARY PRODUCTS or AT&T DERIVED BINARY PRODUCTS
solely for marketing, field test (including beta test),
development, testing, training, education, or demonstration
purposes.
AT&T CONFIDENTIAL
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June 3, 1997 AGREEMENT NO.: SA-______
Software Agreement. Page 5 of 15
4.2. The entity (LICENSEE or an LICENSEE DISTRIBUTOR) furnishing copies of an
AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT to an end
user customer pursuant to Section 4.1. shall provide a license to such
end user customer, before or at the time of furnishing each such copy to
such customer, in the same manner that, and containing terms that are no
less stringent than, LICENSEE licenses its own similar software product
and which contains terms substantially in conformance with the
following, that:
4.2.1. only a nonexclusive right to use such copy of the AT&T
UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT on one
COMPUTER at a time is granted to such end user customer;
4.2,2. no title to the intellectual property in the AT&T UNMODIFIED
BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT is transferred to
such end user customer;
4.2.3. such end user customer will not copy the AT&T UNMODIFIED BINARY
PRODUCT or AT&T DERIVED BINARY PRODUCT except as necessary (for
example to create archive copies) to use such AT&T UNMODIFIED
BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT on such one
COMPUTER, or except in accordance with LICENSEE's procedures for
such copies that insure proper recording of Binary Distribution
Fees;
4.2.4. such end user customer will not transfer the AT&T UNMODIFIED
BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT to any other party
except as authorized by the entity furnishing the AT&T
UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT, and in
all cases subject to the transferring end user's license being
transferred to the transferee;
4.2.5. such end user customer will not export or re-export the AT&T
UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT without
the appropriate United States and foreign government licenses;
and
4.2.6. such end user customer will not decompile or disassemble the
AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT or
put them into human readable form.
4.3. LICENSEE shall require each LICENSEE DISTRIBUTOR to enter into a written
agreement with its supplier of AT&T UNMODIFIED BINARY PRODUCTS or AT&T
DERIVED BINARY PRODUCTS (LICENSEE or another LICENSEE DISTRIBUTOR)
before any AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT
is furnished to such LICENSEE DISTRIBUTOR. Such agreement shall include
provisions which are substantially equivalent to the relevant substance
of Sections 4.2., 4.8., 4.10., and 4.11. of this Agreement. For a
LICENSEE DISTRIBUTOR who is also to be an AUTHORIZED COPIER, such
agreement shall also include provisions consistent with and containing
the relevant substance of Sections 4.5., 4.7. and 4.9. of this
Agreement; provided, however, that only LICENSEE, and AUTHORIZED COPIERS
which have been so authorized by LICENSEE directly, may designate other
LICENSEE DISTRIBUTORS as AUTHORIZED COPIERS.
4.4. LICENSEE DISTRIBUTORS who are not also AUTHORIZED COPIERS may not make
copies of AT&T UNMODIFIED BINARY PRODUCTS or AT&T DERIVED BINARY
PRODUCTS, but may furnish to end user customers and other LICENSEE
DISTRIBUTORS copies of AT&T UNMODIFIED BINARY PRODUCTS or AT&T DERIVED
BINARY PRODUCTS furnished to such LICENSEE DISTRIBUTOR by LICENSEE or
other LICENSEE DISTRIBUTORS. In such cases the product name appearing on
such copies shall not be deleted or altered by such an LICENSEE
DISTRIBUTOR.
AT&T CONFIDENTIAL
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June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 6 of 15
4.5. Consistent with Sections 4.9. and 4.10., a LICENSEE DISTRIBUTOR who is
also an AUTHORIZED COPIER may make copies of AT&T UNMODIFIED BINARY
PRODUCTS or AT&T DERIVED BINARY PRODUCTS and furnish such copies to end
user customers and other LICENSEE DISTRIBUTORS with the other products,
it any, and in the packaging of that LICENSEE DISTRIBUTOR'S choosing.
4.6. LICENSEE shall use its reasonable efforts to enforce the agreements with
LICENSEE DISTRIBUTORS and the end user customers of LICENSEE and
LICENSEE DISTRIBUTORS.
4.7. If an LICENSEE DISTRIBUTOR fails to fulfill one or more of its
obligations required under this Agreement, AT&T may, upon its election
and in addition to any other remedies that it may have, at any time
notify LICENSEE in writing of such failure and request that LICENSEE
terminate that LICENSEE DISTRIBUTOR'S rights granted through this
Agreement by not less than three months' written notice to such LICENSEE
DISTRIBUTOR specifying any such failure, unless within the period of
such notice all failures specified therein shall have been remedied.
Upon such termination LICENSEE shall determine a suitable time, not to
exceed 120 days, for such LICENSEE DISTRIBUTOR to discontinue use of and
return, or destroy and certify the destruction of, all copies of AT&T
UNMODIFIED BINARY PRODUCTS or AT&T DERIVED BINARY PRODUCTS then in its
possession for which Binary Distribution Fees (as defined in the
applicable Supplement) have not been paid.
4.8. LICENSEE agrees that when a SUBSIDIARY'S or an LICENSEE DISTRIBUTOR'S
relationship to LICENSEE changes so that it is no longer a SUBSIDIARY of
LICENSEE or an LICENSEE DISTRIBUTOR, (i) all rights of such former
SUBSIDIARY or LICENSEE DISTRIBUTOR under this Agreement shall
immediately cease, (ii) ail rights of all LICENSEE DISTRIBUTORS and all
LICENSEE AUTHORIZED COPIERS whose rights derive from that former
SUBSIDIARY or LICENSEE DISTRIBUTOR shall immediately cease, and (iii)
such former SUBSIDIARY or LICENSEE DISTRIBUTOR shall return to LICENSEE,
or destroy and certify the destruction of, all copies of AT&T UNMODIFIED
BINARY PRODUCTS or AT&T DERIVED BINARY PRODUCTS then in its possession
for which Binary Distribution Fees have not been paid. However, such
former SUBSIDIARY or LICENSEE DISTRIBUTOR may continue to use, or
LICENSEE may collect from such former SUBSIDIARY or LICENSEE DISTRIBUTOR
and distribute, copies of AT&T UNMODIFIED BINARY PRODUCTS or AT&T
DERIVED BINARY PRODUCTS for which Binary Distribution Fees have been
paid on the same basis that an end user customer may use copies of AT&T
UNMODIFIED BINARY PRODUCTS or AT&T DERIVED BINARY PRODUCTS pursuant to
Section 4.2.
4.9. Notices
4.9.1. Any notice provided by AT&T to LICENSEE in a timely manner,
acknowledging a contribution of a third party appearing in an
AT&T SOFTWARE PRODUCT, shall be included in corresponding
portions of AT&T UNMODIFIED BINARY PRODUCTS or AT&T DERIVED .
BINARY PRODUCTS made by LICENSEE or LICENSEE AUTHORIZED
COPIERS. Instructions regarding such notices may appear in the
Exhibits for certain AT&T SOFTWARE PRODUCTS.
4.9.2. Each portion of an AT&T UNMODIFIED BINARY PRODUCT or AT&T
DERIVED BINARY PRODUCT shall include an appropriate copyright
notice. Such copyright notice shall be the copyright notice or
notices appearing in or on the corresponding portions of the
AT&T SOFTWARE PRODUCT on which such AT&T UNMODIFIED BINARY
PRODUCT or AT&T DERIVED BINARY PRODUCT is based (except that
LICENSEE may remove all copyright notices of parties other than
AT&T from AT&T DERIVED BINARY PRODUCTS); in addition, if
copyrightable changes are made in developing such AT&T DERIVED
BINARY PRODUCT, LICENSEE, may include a copyright notice
identifying the owner of such changes. Nothing in this
Agreement will constitute an approval by AT&T for LICENSEE to
use AT&T's logos.
AT&T CONFIDENTIAL
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June 3, 1997 AGREEMENT NO.: SA-______
Software Agreement. Page 7 of 15
4.10. LICENSEE shall market each AT&T UNMODIFIED BINARY PRODUCT or AT&T
DERIVED BINARY PRODUCT consistent with the designation as specified in
the applicable Exhibit containing such AT&T UNMODIFIED BINARY PRODUCT or
AT&T DERIVED BINARY PRODUCT. Notwithstanding the foregoing, LICENSEE
shall not use or display any AT&T logo in LICENSEE's materials or
packaging without AT&T's prior written permission. LICENSEE shall not
use or imitate the trade dress of AT&T's products without the prior
written approval of AT&T.
4.11. Any AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT which
LICENSEE or an LICENSEE DISTRIBUTOR distributes hereunder to the United
States of America, its agencies, instrumentalities, and/or contractors
shall be furnished with "Restricted Rights" as described below. LICENSEE
or the LICENSEE DISTRIBUTOR, as the case may be, must affix a legend to
each portion of an AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY
PRODUCT provided to such a customer which conforms to the following:
Restricted Rights Notice: Use, duplication, or disclosure is subject
to restrictions set forth in 48 CFR 52.227-19(c)(1), (2) or DFAR
Supplement 252.227-7013(c)(1)(ii), as applicable.
5. LICENSEE DESIGNATED SITES
5.1. LICENSEE may at any time notify AT&T in writing of any proposed changes
(i.e., replacements or additions) that LICENSEE wishes to make to the
DESIGNATED SITES for specific AT&T SOURCE SOFTWARE. AT&T reserves the
right to approve or disapprove of LICENSEE's proposed changes; however,
AT&T may not withhold its approval of changes involving LICENSEE owned
or operated facilities, and will not otherwise unreasonably withhold its
approval. AT&T will prepare an amendment to the Supplement for that AT&T
SOURCE SOFTWARE to cover such approved changes. Changes covered by such
an amendment shall become effective after execution of such amendment by
LICENSEE and by AT&T and, in the case of each additional DESIGNATED
SITE, receipt by AT&T of the appropriate fee; replacement DESIGNATED
SITES do not require the payment of additional fees.
5.2. On AT&T's request, but not more frequently than annually, LICENSEE shall
furnish to AT&T a statement, certified by an authorized representative
of LICENSEE, listing the location of all DESIGNATED SITES hereunder and
stating that the use by LICENSEE of AT&T SOURCE SOFTWARE has been
reviewed and that each such copy of AT&T SOURCE SOFTWARE is being used
solely at the DESIGNATED SITES for such copy of AT&T SOURCE SOFTWARE in
full compliance with the provisions of this Agreement.
6. LICENSEE CONTRACTORS
6.1. LICENSEE may permit access to AT&T SOURCE SOFTWARE by its contractors
and allow use of AT&T SOURCE SOFTWARE by its contractors at the
DESIGNATED SITES for that AT&T SOURCE SOFTWARE, provided such access and
use is exclusively for LICENSEE in connection with work called for in
written agreements between LICENSEE and such contractors in accordance
with Section 6.5.
6.2. Any claim, demand, or right of action arising on behalf of a contractor
from the furnishing to it or use by it of AT&T SOFTWARE PRODUCTS shall
be solely against LICENSEE.
6.3. When a contractor's work for LICENSEE is completed, all copies of AT&T
SOURCE SOFTWARE furnished to such contractor or made by such contractor
and all copies of any DERIVATIVE WORKS made by such contractor based on
AT&T SOURCE SOFTWARE shall be returned to LICENSEE or destroyed,
including any copies stored in any computer memory or storage medium.
AT&T CONFIDENTIAL
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June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 8 of 15
6.4. A contractor may not acquire any ownership interest in any DERIVATIVE
WORK of AT&T SOURCE SOFTWARE.
6.5. LICENSEE and each of its contractors shall enter into a written
agreement before or at the time LICENSEE permits access to or allows use
of AT&T SOURCE SOFTWARE by that contractor, or LICENSEE furnishes AT&T
SOURCE SOFTWARE to that contractor, in which that contractor shall agree
to the same responsibilities and obligations as to confidentiality and
other restrictions pertaining to the use of AT&T SOURCE SOFTWARE as
those undertaken by LICENSEE under this Agreement. Such written
agreement shall also be consistent with the requirements of this
Section. Copies of such agreements shall be provided to AT&T on request;
however, portions of such agreements not required by this Section may be
deleted from such copies.
7. DELIVERY BY AT&T
Subject to the provisions found in the Exhibit of the Supplement for the
particular AT&T SOFTWARE PRODUCT, AT&T shall furnish to LICENSEE one
copy of such AT&T SOFTWARE PRODUCT in the form identified in the Exhibit
of the Supplement, and in accordance with the schedule in the Exhibit of
the Supplement, for such products.
8. ACCEPTANCE BY LICENSEE
8.1. LICENSEE shall have 60 days from receipt of a version of an AT&T
SOFTWARE PRODUCT, supported and tested by AT&T, to ensure that said
product conforms with the specifications set forth in the Exhibit of the
Supplement attached hereto.
8.2. If an AT&T SOFTWARE PRODUCT does not conform with the specifications
specified in Section 8.1., LICENSEE may promptly notify AT&T in writing
of such non-conformance in reasonable detail. AT&T shall have 45 days
after receipt of such notice, or such longer time as the parties may
agree, to correct such non-conformance. AT&T shall use reasonable
efforts to correct any reproducible non-conformance and to resubmit a
corrected AT&T SOFTWARE PRODUCT within the initial 45 days following
receipt of the initial notice from LICENSEE. LICENSEE shall have 30 days
after re-submission of such corrected AT&T SOFTWARE PRODUCT to again
evaluate it against the applicable specifications. In the event that
such resubmitted product still exhibits nonconformance, LICENSEE may
again notify AT&T in writing of such remaining non-conformance within 30
days after the receipt of the corrected AT&T SOFTWARE PRODUCT. In the
event that (i) within 30 days after receipt of the second notice
specified above AT&T has not corrected any remaining non-conformance
that is reproducible and resubmitted a corrected version of such AT&T
SOFTWARE PRODUCT to LICENSEE, or (ii) such resubmitted product still
exhibits reproducible non-conformance, LICENSEE may immediately
terminate the applicable Supplement upon written notice to AT&T, AT&T
shall refund all fees paid by LICENSEE for such AT&T SOFTWARE PRODUCT,
and LICENSEE shall certify the destruction of all copies of such AT&T
SOFTWARE PRODUCT in accordance with Section 13.2. of this Agreement.
9. EXPORT BY LICENSEE
9.1. LICENSEE agrees that it will comply with any and all applicable laws
governing export of AT&T SOFTWARE PRODUCTS. LICENSEE agrees that it will
obtain any and all necessary export licenses for any export. For
purposes of this Section 9., "export by LICENSEE" includes any
disclosure of an AT&T SOFTWARE PRODUCT to a foreign national where such
disclosure is considered an export by the applicable export control
authority. LICENSEE's obligations to AT&T in this Section 9.1. are
subject to AT&T providing LICENSEE with the usual published technical
specifications and Export Commodity Control Numbers, as appropriate, to
enable LICENSEE to make its own licensing determinations or applications
for such products.
AT&T CONFIDENTIAL
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June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 9 of 15
9.2. LICENSEE hereby assures AT&T that it does not intend to and will not
knowingly, without the prior written consent, if required, of the Office
of Export Administration of the U.S. Department of Commerce, Washington,
D.C. 20230, transmit, directly or indirectly:
9.2.1. AT&T SOFTWARE PRODUCTS; or
9.2.2. any immediate product (including processes and services)
produced directly by the use of any AT&T SOFTWARE PRODUCT; or
9.2.3. any commodity produced by such immediate product if the
immediate product of any AT&T SOFTWARE PRODUCT is a plant
capable of producing a commodity or is a major component of such
plant;
to Iran, Iraq, Syria, Yugoslavia, the People's Republic of China, or any
Group Q, S, W, Y, or Z country specified in Supplement No. 1 to Section
770 of the Export Administration Regulations issued by the U.S.
Department of Commerce.
10. LICENSEE LICENSE FEES AND TAXES
10.1. LICENSEE agrees that, within 30 days after receipt of an invoice issued
by AT&T after the EFFECTIVE DATE, LICENSEE shall pay to AT&T the fees
for the AT&T SOFTWARE PRODUCTS required by the Supplement initially
attached hereto, unless LICENSEE reasonably disputes such invoice.
10.2. Within 30 days after receipt of a correct invoice issued by AT&T after
the effective date of an additional Supplement and the acceptance by
LICENSEE of the additional AT&T SOFTWARE PRODUCT shipped pursuant to
such Supplement, LICENSEE shall pay to AT&T the fee required by such
additional Supplement for the DESIGNATED SITES or the AT&T SOFTWARE
PRODUCT listed in such additional Supplement.
10.3. LICENSEE shall be responsible for the payment of all taxes, including
any sales or use tax (and any related interest or penalty), however
designated, imposed as a result of the licensing of AT&T SOFTWARE
PRODUCTS and development activities hereunder, except (i) any taxes
imposed which do not arise under the LICENSEE licensing or development
activities contemplated by this Agreement; and (ii) taxes based on
AT&T's net income or franchise taxes imposed by any governmental entity.
Subject to the foregoing, fees specified in Supplements to this
Agreement and in Exhibits attached to such Supplements do not include
taxes. If AT&T is required to collect a tax to be paid by LICENSEE,
LICENSEE shall reimburse AT&T for that tax paid by AT&T within 60 days
of demand unless LICENSEE disputes the obligation to pay such tax.
11. LICENSEE BINARY DISTRIBUTION FEE REPORTS AND PAYMENTS
11.1. For the rights granted under this Agreement, LICENSEE shall pay to AT&T,
except as otherwise provided herein, Binary Distribution Fees for AT&T
UNMODIFIED BINARY PRODUCTS and AT&T DERIVED BINARY PRODUCTS or portions
thereof, either (i) furnished by LICENSEE to an end user customer or to
an LICENSEE DISTRIBUTOR, (ii) made by an AUTHORIZED COPIER and furnished
by such AUTHORIZED COPIER to a customer or to another LICENSEE
DISTRIBUTOR or (iii) put into use by LICENSEE on a COMPUTER of LICENSEE.
The amounts of such Binary Distribution Fees are listed in the
applicable Supplement for each AT&T SOFTWARE PRODUCT. For the purposes
of this Agreement, the effective date for establishing an obligation
under this Section shall be the date when LICENSEE first sells, leases,
or puts into use the AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED
BINARY PRODUCT.
11.2. LICENSEE shall notify AT&T in writing within 30 days of when it begins
providing AT&T UNMODIFIED BINARY PRODUCTS or AT&T DERIVED BINARY
PRODUCTS or portions thereof
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June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page l of 15
subject to Binary Distribution Fees to customers or LICENSEE
DISTRIBUTORS, or puts any AT&T UNMODIFIED BINARY PRODUCTS or AT&T
DERIVED BINARY PRODUCTS or portions thereof into use on LICENSEE's
COMPUTERs.
11.3. Within 30 days after the end of each quarter ending on March 31st, June
30th, September 30th or December 31st, commencing with the quarter
containing the date identified in Section 11.2., LICENSEE shall furnish
to AT&T a written statement for each AT&T UNMODIFIED BINARY PRODUCTS or
AT&T DERIVED BINARY PRODUCTS for which LICENSEE has given notice to AT&T
pursuant to Section 11.2., signed by an authorized representative of
LICENSEE, identifying:
11.3.1. The number of copies of each AT&T DERIVED BINARY PRODUCT for
which LICENSEE owes Binary Distribution Fees under Section
11.1., in a manner consistent with the pricing Exhibit for such
AT&T DERIVED BINARY PRODUCT.
11.3.2. The number of copies of each AT&T UNMODIFIED BINARY PRODUCT for
which LICENSEE owes Binary Distribution Fees under Section
11.1., in a manner consistent with the pricing Exhibit for such
AT&T UNMODIFIED BINARY PRODUCT.
11.3.3. The number of copies of each AT&T DERIVED BINARY PRODUCT and
AT&T UNMODIFIED BINARY PRODUCT for which LICENSEE does not owe
a Binary Distribution Fee, but only at AT&T's specific request
and only if that information is available to LICENSEE.
11.3.4. The Binary Distribution Fees payable for the AT&T UNMODIFIED
BINARY PRODUCTS or AT&T DERIVED BINARY PRODUCTS, or portions
thereof.
11.4. Within the 30 day period described in Section 11.3., LICENSEE shall,
irrespective of its own business and accounting methods, pay to AT&T the
quarterly payment for such quarter as shown in the statement required by
Section 11.3.
11.5. Payments provided for in this Agreement and its Supplements and Exhibits
shall, when overdue and not in dispute, be subject to a late payment
charge calculated at an annual rate of 1% over the prime rate of
Citibank NA until paid; provided, however, that if the amount of such
late payment charge exceeds the maximum permitted by law for such
charge, such charge shall be reduced to such amount.
11.6. Additionally, notwithstanding anything herein to the contrary, LICENSEE
will owe AT&T no fees or royalties for copies of AT&T UNMODIFIED BINARY
PRODUCTS or AT&T DERIVED BINARY PRODUCTS which are returned to LICENSEE
by its end-user customers or DISTRIBUTOR or destroyed pursuant to
LICENSEE's product warranties.
12. LICENSEE RECORDS AND AUDIT
12.1. LICENSEE shall keep full, clear, and accurate records, for three years
after the events they reflect, sufficient to prepare the statements to
AT&T required by Section 11.
12.2. Each AUTHORIZED COPIER shall keep full, clear, and accurate records, for
three years after the events they reflect, sufficient to prepare the
statements to LICENSEE required by Section 11.
12.3. LICENSEE shall keep full, clear, and accurate records of the identities
and locations of LICENSEE AUTHORIZED COPIERS.
12.4. AT&T shall have the right, for three years after the events they
reflect, through its accredited third party auditing representatives, to
make an examination and audit, during normal business hours, not more
frequently than annually, upon reasonable prior notice to LICENSEE, of
all records kept
AT&T CONFIDENTIAL
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June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 11 of 15
pursuant to this Section and Section 11. by LICENSEE for itself and
LICENSEE AUTHORIZED COPIERS and such other records and accounts as may
under recognized accounting practices contain information bearing upon
the amounts payable to AT&T under this Agreement. Upon reasonable cause,
AT&T may request that LICENSEE conduct an audit of an LICENSEE AUTHORIZED
COPIER and permit AT&T's accredited third party auditing representative
to review the results. Prompt adjustment shall be made by the proper
party to compensate for any errors or omissions disclosed by such
examination or audit. Neither such right to examine and audit, nor the
right to receive such adjustment, shall be affected by any statement to
the contrary appearing on checks or otherwise, unless such statement
appears in a letter signed by the party having such right and delivered
to the other party expressly waiving such right. The failure of AT&T to
request an audit prior to the expiration of LICENSEE's obligation to
retain records shall not constitute a waiver of any cause of action which
arises out of this Agreement. AT&T agrees that, prior to conducting such
an audit, its auditing representative will sign a suitable
confidentiality agreement with LICENSEE and it will disclose to AT&T only
that information which is necessary for AT&T to understand the findings
of the audit, which information will in no event include the names and
locations of LICENSEE customers. AT&T shall pay the fees and expenses of
the auditor unless the auditor's report shows noncompliance in an
aggregate amount exceeding 10% of the amount properly due, in which case
LICENSEE shall pay the fees and expenses of the auditor for that audit.
An audit conducted under this Section 12.4. shall not in any way affect
LICENSEE's obligation to comply with its financial obligations under this
Agreement.
13. TERM AND TERMINATION
13.1. The term of this Agreement begins on the EFFECTIVE DATE and continues
until terminated pursuant to this Section 13.
13.2. LICENSEE may terminate its rights under this Agreement with respect to a
AT&T SOFTWARE PRODUCT by certifying in writing that LICENSEE has
discontinued use of and returned or destroyed all copies of AT&T
SOFTWARE PRODUCT.
13.3. If one party materially breaches one or more of its obligations under
this Agreement, the other party may at any time, upon its election and
in addition to any other remedies that it may have, initiate termination
of all the rights granted by it hereunder, by not less than two months'
written notice to the breaching party specifying such breach in
reasonable detail. If the breaching party is unable to cure such breach
within such two month period, or after a reasonable additional period if
the breach is of a type which by its nature cannot reasonably be cured
within two months, the nonbreaching party may, by further written
notice, terminate this Agreement 30 days from the date of such further
notice, unless within such additional 30 day period such breach has been
cured. Notwithstanding the foregoing, if the breaching party is in
material default of its confidentiality or use obligations under Section
16., the non-breaching party may, upon its election and in addition to
any other remedies that it may have, immediately terminate all rights
granted by it hereunder. If the breaching party is LICENSEE, upon any
such termination, LICENSEE shall immediately discontinue use of and
return, or destroy and certify the destruction of, all copies of the
AT&T SOFTWARE PRODUCTS, except as Section 13.4. provides.
13.4. If termination occurs under Section 13.3. after LICENSEE has furnished
copies of AT&T UNMODIFIED BINARY PRODUCT or AT&T DERIVED BINARY PRODUCT
to an end user, under a license granted hereunder, the LICENSEE may
retain sufficient copies of the AT&T SOURCE SOFTWARE for the sole
purpose of fulfilling contractual obligations to provide ongoing support
to that end user. At such time as the LICENSEE has no contractual
obligations to any end users for ongoing support, the LICENSEE shall
immediately stop using, and shall return or certify the destruction of,
all copies of the AT&T SOURCE SOFTWARE, AT&T UNMODIFIED BINARY PRODUCTS,
AND AT&T DERIVED BINARY PRODUCTS.
AT&T CONFIDENTIAL
<PAGE> 15
June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 12 of 15
13.5. In the event of termination of rights under Sections 13.2. or 13.3.,
each party shall refund any amounts paid to it under this Agreement
which amounts were overpaid by the other, but no other amounts properly
paid under this Agreement shall be refunded.
13.6. A waiver of a breach of any term of this Agreement shall not be
construed as a waiver of any later breach of that term or as a waiver of
the term itself. A party's performance after the other party's breach
shall not be construed as a waiver of that breach.
13.7. The following shall survive termination of this Agreement for any
reason: Sections 4.8., 6.4., 9., 10.3., 12., 13., 14., 16., 17.1.,
17.3., 17.10., 17.11., and any other Sections or Exhibits to the extent
necessary to achieve the survival of any Sections specified in this
Section 13.7.; no other Sections of this Agreement shall survive
termination. In addition, all financial obligations which had 'accrued
but which were unpaid as of the effective date of termination shall
survive termination, and all financial obligations which would have
accrued after the effective date of termination shall terminate.
14. AT&T WARRANTY AND INDEMNIFICATION
14.1. SUBJECT TO SECTION 14.1.1., AT&T AND OTHER DEVELOPERS MAKE NO OTHER
REPRESENTATIONS OR WARRANTIES, EXPRESSLY OR IMPLIEDLY. BY WAY OF EXAMPLE
BUT NOT OF LIMITATION, AT&T AND OTHER DEVELOPERS MAKE NO REPRESENTATIONS
OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
14.1.1. AT&T represents that it has the sufficient right, title, and
interest in the AT&T SOFTWARE PRODUCTS in the unmodified form
provided to LICENSEE hereunder to enter into this Agreement.
AT&T agrees to defend, at its expense, any suit against
LICENSEE, based upon a claim that AT&T does not have sufficient
right, title, and interest in the AT&T SOFTWARE PRODUCTS to make
this Agreement, or that the AT&T SOFTWARE PRODUCT infringes, a
United States trademark or copyright (insofar as such
infringement relates to the DOCUMENTATION for or the code of the
AT&T SOFTWARE PRODUCT), and to pay any settlement, or any
damages finally awarded after appeal (including costs and
attorney fees, if any, awarded as part of the final judgment) in
any such suit.
14.1.2. AT&Ts obligations under Section 14.1.1. shall not be effective
unless (i) AT&T is notified in writing of any notice of claim or
of threatened or actual suit and (ii) AT&T is given full control
of the defense and/or settlement, together with full cooperation
by LICENSEE at AT&T's expense, including the provision of all
relevant information available to LICENSEE, with respect to such
defense and/or settlement of the same.
14.1.3. Following written notification of a claim of a threatened or
actual suit, AT&T may at its own expense and in addition to
AT&T's obligations in Section 14.1.1. (i) procure for LICENSEE
the right to continue to market, use, and have others use the
alleged infringing AT&T SOFTWARE PRODUCT; or (ii) make it
non-infringing; or (iii) if a permanent injunction should issue
terminate the applicable Supplement for such AT&T SOFTWARE
PRODUCT and refund all the fees (subject to five year straight
line depreciation) received from LICENSEE for such AT&T SOFTWARE
PRODUCT. If AT&T elects to replace or modify such AT&T SOFTWARE
PRODUCT, such replacement shall meet substantially the
specifications as provided or referenced in the applicable
Exhibit of the Supplement for such AT&T SOFTWARE PRODUCT.
14.1.4. AT&T shall have no liability for any claim alleging patent
infringement whatsoever, or for copyright infringement based on
LICENSEE's, an LICENSEE DISTRIBUTOR'S, or an end user's (i)
continued use after notification of infringement of other than
the then
AT&T CONFIDENTIAL
<PAGE> 16
June 3, 1997 AGREEMENT NO.: SA_____
Software Agreement. Page 13 of 15
current release of the AT&T SOFTWARE PRODUCT received from AT&T
if such claim would have been avoided by use of the then current
release so long as that release was made available to LICENSEE,
LICENSEE DISTRIBUTORS, and end users without additional charge,
(ii) combination of an AT&T SOFTWARE PRODUCT with a product not
delivered by AT&T hereunder, or (iii) the development of a
DERIVATIVE WORK, if such claim would have been avoided by the
exclusive use of the AT&T SOFTWARE PRODUCT in the form delivered
by AT&T to LICENSEE hereunder.
14.1.5. AT&T shall have no obligation to LICENSEE for any claim made
against LICENSEE which arises from the unauthorized use,
license, or other disposition of an AT&T SOFTWARE PRODUCT
outside the United States, and LICENSEE hereby releases and
discharges AT&T from any and all claims resulting from such
use.
14.2. The obligations of this Section 14. shall survive termination of this
Agreement.
15. SUPPORT
Except as may otherwise be expressly provided in this agreement or in
another written agreement signed by both parties, AT&T is not obligated
to provide support, assistance, information, or DOCUMENTATION for its
SOFTWARE PRODUCTS to any person, including LICENSEE.
16. CONFIDENTIALITY AND USE
16.1. LICENSEE shall hold all parts of the AT&T SOURCE SOFTWARE subject to
this Agreement in confidence for AT&T during the term of this Agreement,
and if this Agreement is terminated for any reason, for a period
extending five years beyond LICENSEE's return or certified destruction
of AT&T SOURCE SOFTWARE. LICENSEE further agrees that it shall not make
any disclosure of any or all of such all copies AT&T SOURCE SOFTWARE
(including methods or concepts utilized therein) to anyone, except to
employees and contractors of LICENSEE to whom such disclosure is
necessary for the uses for which rights are granted hereunder. LICENSEE
shall appropriately notify each employee and contractor to whom any such
disclosure is made that such disclosure is made in confidence and shall
be kept in confidence by such employees and contractor.
16.2. Notwithstanding anything to the contrary herein, neither party shall
have the obligation to preserve the confidentiality of any information
if such information:
16.2.1. was previously known to the receiving party free of any
obligation to keep it confidential as evidenced by
documentation in such party's possession; or
16.2.2. is or becomes publicly available by other than unauthorized
disclosure by the receiving party; or
16.2.3. is developed by or on behalf of the receiving party
independent of this Agreement; or
16.2.4. is received by the receiving party from a third party whose
disclosure does not violate any confidentiality obligation with
the disclosing party, or with that party; or
16.2.5. is approved for release by written authorization by the
disclosing party; or
16.2.6. is lawfully required for use by a governmental agency or in a
court proceeding, or must be disclosed by operation of law.
16.3. LICENSEE agrees that it will not use AT&T SOURCE SOFTWARE subject to
this Agreement except as authorized herein and that it will not make,
have made, or permit to be made any copies
AT&T CONFIDENTIAL
<PAGE> 17
June 3, 1997 AGREEMENT NO.: SA-_____
Software Agreement. Page 14 of 15
of such AT&T SOURCE SOFTWARE except for use at DESIGNATED SITES for such
AT&T SOURCE SOFTWARE (including backup and archive copies necessary in
connection with such use). Each such copy shall contain any copyright
notice, proprietary notice, or notice giving credit to another developer,
which appears on or in the AT&T SOURCE SOFTWARE being copied. Specific
instructions regarding such notices may also appear in the Exhibits of
the Supplement for certain AT&T SOURCE SOFTWARE.
17. MISCELLANEOUS
17.1 This Agreement shall prevail notwithstanding any conflicting terms or
legends which may appear in an AT&T SOFTWARE PRODUCT.
17.2. Neither this Agreement nor any rights hereunder, in whole or in part,
shall be assignable or otherwise transferable by either party, and any
purported assignment or transfer shall be null and void. The foregoing
shall not apply to assignments to SUBSIDIARIES of the parties to this
Agreement, nor to assignments in connection with a party's transfer of
all or a substantial portion of its assets, product lines, or
businesses, or by reason of acquisition, merger, consolidation, or
operation of law; however, the party assigning this Agreement under this
sentence shall promptly communicate the assignment to the other party in
a written notice.
Unless otherwise provided in Supplements or Exhibits to this Agreement,
no right is granted herein to either party to this Agreement to use any
identifying mark (such as, but not limited to, trade names, trademarks,
trade devices, service marks, or symbols, and abbreviations,
contractions, or simulations thereof) owned by, or used to identify any
product or service of, the other party. Except as is otherwise provided
by law, the parties agree that they will not, without the prior written
permission of the other party, (i) use any such identifying mark in
advertising, publicity, packaging, labeling, or in any other manner to
identify any of its products or services or (ii) represent, directly or
indirectly, that any product or service of the other party is a product
or service of such party or is made in accordance with or utilizes any
information or DOCUMENTATION of the other party.
17.4.Neither party shall be liable to the other for delays in performing
under this Agreement if the delay is caused by shortage of labor,
strike, lockout, default or failure of suppliers, riot, war, government
action, law, or regulation, act of God, fire, flood, or other cause
beyond the party's reasonable control.
17.5. Correspondence with AT&T relating to this Agreement shall be sent to:
AT&T Corp. Network Software OEM Business Development Manager Room 2A361
1100 E. Warrenville Rd. Naperville, IL 60566
17.6. Payments in United States dollars and reports to AT&T shall be made to:
AT&T
P.O. Box 93483
Chicaao, IL 60673
Reference Account Number: Direct wire payment may be made to:
AT&T
First National Bank of Chicago
AT&T CONFIDENTIAL
<PAGE> 18
June 3, 1997 AGREEMENT NO.: SA ______
Software Agreement. Page 15 of 15
MIBS Acct: 51-09272
Account Number:
ABA Number 071000013
17.7. Correspondence with LICENSEE relating to this Agreement shall be sent
to:
General Counsel,
Auspex Systems
5200 Great America Parkway
Santa Clara, CA 95054
17.8. Any statement, notice, request, or other communication shall be deemed
to be sufficiently given to the addressee, and any delivery hereunder
deemed made, when sent by certified mail addressed to LICENSEE at its
off ice in Section 17.7. or to AT&T at its offices specified in Section
17.5. Each party to this Agreement may change an address relating to it
by written notice to the other party.
17.9. This Agreement shall not be construed to limit either parties right to
obtain services or software programs from other sources, to prohibit or
restrict either party from independently developing or acquiring
competitive materials, or to restrict either party from making, having
made, using, leasing, licensing, selling or otherwise disposing of any
products or services whatsoever, nor is either party's right to deal
with any other vendors, suppliers, contractors or customers limited
hereby. The foregoing sentence shall not be construed as an implied
license under any patent, copyright, or other intellectual property
right of any party.
17.10. This Agreement shall be governed by the rules and laws of the State of
California. LICENSEE and AT&T agree to submit any dispute or controversy
arising out of or relating to this Agreement to nonbinding mediation to
be held in accordance with the Commercial Mediation Rules of the
American Arbitration Association. This Section 17.10. will not apply to
any issues of intellectual property. LICENSEE and AT&T agree that their
participation in a mediation and the entire mediation proceeding,
including but not limited to all statements, discussions, conduct,
rulings, findings, or determinations in that mediation proceeding or
relating to it, will be confidential, will constitute settlement
negotiations under Rule 408 of the Federal Rules of Evidence, and will
not be admissible in any proceeding or action of any kind, and that
neither party will introduce or attempt to introduce the above in any
other proceeding or action. The parties agree to perform whatever steps
are necessary to ensure that each mediation proceeding complies with
this Section 17.10.
17.11. If any section or subsection of this Agreement or any Supplement or
Exhibit is found by competent judicial authority to be invalid, illegal,
or unenforceable in any respect, then that section or subsection in
every other respect, and the remainder of this Agreement and its
Supplements and Exhibits, shall continue in effect if the Agreement and
its Supplements and Exhibits still express the intent of the parties as
of the EFFECTIVE DATE. If that intent cannot be preserved, this
Agreement and its Supplements and Exhibits shall be either re negotiated
or terminated.
AT&T CONFIDENTIAL
<PAGE> 19
June 3, 1997 AGREEMENT NO.: SA_____
Page 1 of 1
Licensee:
Agreement Number:
Supplement Number: 01
SUPPLEMENT 01
TO SOFTWARE LICENSING AGREEMENT
BETWEEN LICENSEE & AT&T
1 For purposes of this Supplement 01, AT&T SOURCE SOFTWARE means the
VERSION RELEASES of the SERVER Advanced Server for UNIX V4.X.
2. For purposes of this Supplement 01, the porting environments for the
AT&T SOURCE SOFTWARE shall be:
[ *** ]
3. For the purposes of this Supplement 01 and attached Exhibit 1 -A, AT&T
and Licensee agree that:
[ *** ]
[ *** ]
4. For the purposes of this Supplement 01, the Designated CPU shall be:
CPU Serial Number:
5. For the purposes of this Supplement 01, DESIGNATED SITES for the AT&T
SOURCE SOFTWARE means:
SITE ADDRESS 5200 Great America Parkway, Santa Clara, CA 95054
6. Use of the products at the DESIGNATED SITES shall be subject to the
terms and conditions of the above referenced Agreement. Exhibits of fees
and conditions for the use of such products are attached to and
incorporated into this Supplement.
7. This Supplement 01 and Exhibit 1A are attached to and made a part of
the above referenced Agreement. Execution and acceptance of such
Agreement also constitutes execution and acceptance of this Supplement
and Exhibit.
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
AT&T CONFIDENTIAL
<PAGE> 20
06/03/97 3:41 PM AGREEMENT NO.: SA ______
Page 1 of 2
EXHIBIT 1 -A
SCHEDULE FOR
AT&T ADVANCED SERVER FOR UNIX @ SYSTEMS
1. FEES
1. 1. Right-to-use fees for each AT&T SOFTWARE PRODUCT
1.1.1. Initial DESIGNATED CPU [ *** ]
1.1.2. Second DESIGNATED CPU [ *** ]
1.1.3. Third and Subsequent [ *** ]
1.2. Binary Distribution fees UNLIMITED KITS ("KIT") which is the
DERIVED BINARY PRODUCT
1.2.1. Binary Distribution Fee per KIT (KIT fee):
CLASS: UNLIMITED KIT FOR HOST PROCESSOR
<TABLE>
<CAPTION>
CUMULATIVE SHIPMENT (UNITS) ROYALTY MINIMUM
<S> <C> <C>
0 to 5000 [ *** ]
5001 to 10,000 [ *** ]
10,001 to 15,000 [ *** ]
15,001 to 20,000 [ *** ]
</TABLE>
1.3. For purposes of Section 1.2. an UNLIMITED KIT means a KIT
configured so that one (1) Advanced Server for UNIX BINARY Server
running on SUNOS or Solaris based Host Processor in an Auspex
server system supports an unlimited number of concurrent clients.
1.4. The KIT fees due from LICENSEE for the KIT to AT&T shall be equal
to [ *** ].
1.5. In-place upgrades from one class of users to another are allowed,
as long as the LICENSEE timely pays AT&T the appropriate difference
between the initial Binary Distribution fee and the new Binary
Distribution fee.
1.6. The royalty for in-place upgrades between updates (as designated by
the digit to the right of the decimal point) will be [ *** ]. Such
kits will be identified on the quarterly reports.
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
<PAGE> 21
2. DESIGNATIONS & ASSOCIATED TRADEMARKS FOR X-CLIENT Advanced Server for
UNIX BINARY KITS
06/03/97 3:41 PM AGREEMENT NO.: SA ______
Page 2 of 2
2.1. When the KIT is sold as a separate product (Unbundled), LICENSEE
must use a designation selected in accordance with the following:
2.1.1. The KIT designation contains "Advanced Server Version X for
(operating system] (where X designates the corresponding
release of AT&T's Advanced Server for UNIX Systems), or any
other designation mutually agreed to by both parties; and
2.1.2. When the initial screen pops up in the BINARY PRODUCT,
LICENSEE states prominently that its KIT "is", "is based
on" or "incorporates" AT&T's Advanced Server for UNIX
System. ("Compatible with", "derived from", or the like
wording does NOT satisfy this requirement); and
2.1.3. On the outside of the KIT packaging, LICENSEE states
prominently that its KIT "is", "is based on" or,
"incorporates" AT&T's Advanced Server for UNIX Systems.
("Compatible with", "derived from", or the like wording
does NOT satisfy this requirement); and
2.1.4. In all KIT documentation, collateral materials, press
releases and advertisements, on the same page and with
reference to the first use of LICENSEE'S KIT designation,
LICENSEE indicates in the text or by footnote that their
KIT "is", "is based on" or "incorporates", AT&T's Advanced
Server for UNIX Systems. ("Compatible with", "derived
from", or the like wording does NOT satisfy this
requirement).
2.2. When the KIT is sold as part of another product, or will in no way
be identified as a separate product from a larger integrated
product (Bundled) LICENSEE must use a designation selected in
accordance with the following:
2.2.1. When the initial screen pops up in the BINARY PRODUCT,
LICENSEE states prominently that its KIT "is", "is based
on" or "incorporates" AT&T's Advanced Server for UNIX
Systems. ("Compatible with", "derived from", or the like
wording does NOT satisfy this requirement); and
2.2.2. In all product documentation LICENSEE indicates in the text
or by footnote that their KIT "is", "is based on" or
"incorporates", AT&T's Advanced Server for UNIX Systems.
("Compatible with", "derived from", or the like wording
does NOT satisfy this requirement).
<PAGE> 1
[LOGO] EXHIBIT 10.33
Source License Agreement
This Agreement is made and entered by and between Programmed Logic Corporation
(hereinafter "PLC") a New Jersey corporation with offices at 200 Cottontail
Lane, Somerset, NJ 08873, and AUSPEX SYSTEMS, INC., a Delaware corporation with
offices at 2300 Central Expressway, Santa Clara, CA 95050 (hereinafter
"LICENSEE").
RECITALS
PLC has developed certain computer software, which embodies and reflects certain
trade secrets of and confidential information to PLC. LICENSEE desires to
license the source code for that software from PLC, subject to the following
terms and conditions.
The parties have entered into a separate Bundled Hardware OEM Binary License
Agreement (the "OEM Agreement"), pursuant to which LICENSEE is authorized to
distribute the SOFTWARE in object code form.
AGREEMENT
1. DEFINITIONS.
1.1 SOFTWARE means a copy of the source code to the PLC PRODUCTS specified on
Exhibit A of this Agreement (including all comments), any modified
versions of such SOFTWARE provided by PLC, and any object code created
using any portion of such SOFTWARE, any modified version of such SOFTWARE
prepared by LICENSEE as permitted under section 2 below.
1.2 DOCUMENTATION means any related documentation of the SOFTWARE provided to
LICENSEE by PLC with the SOFTWARE under this Agreement, which shall
include, without limitation (1) installation and documentation notes; (2)
release notes (specific to the release of the SOFTWARE provided); and (3)
a user manual for the SOFTWARE.
1.3 LICENSED MATERIALS means collectively (a) the SOFTWARE, (b) the
DOCUMENTATION, (c) any available internal documentation for the SOFTWARE
source code, including design documentation and implementation notes,
subject to PLC's approval on a case by case basis, and (d) the source code
for any available tests for the SOFTWARE, subject to PLC's approval on a
case by case basis.
2. GRANT OF LICENSE.
2.1 PLC grants to LICENSEE a non-exclusive, non-transferable, non-assignable,
and restricted license to use, and where applicable, to compile and the
LICENSED MATERIALS only for the Purposes and subject to any additional
Limitations set forth in Exhibit A, and only at the Designated Sites and
on the Designated Equipment set forth in Exhibit A. Without limiting the
foregoing, there shall be no access to the LICENSED MATERIALS by any
computers or terminals located off of the Designated Sites.
2.2 LICENSEE's use under this section 2 may include modifying or adapting the
SOFTWARE as necessary or appropriate for the Purposes and subject to any
additional limitations as set forth in Exhibit A.
2.3 LICENSEE may make one copy of the SOFTWARE in tangible form for purposes
of backup, provided that such copy includes a reproduction of any notices
appearing in or on the SOFTWARE.
2.4 LICENSEE may make such copies of the SOFTWARE in tangible object code form
required for testing the modifications made by LICENSEE to the SOFTWARE
under this Agreement, provided that such copies include a reproduction of
any notices appearing in or on the SOFTWARE.
2.5 No license is granted for any other purpose.
3. ADDITIONAL RESTRICTIONS.
3.1 Any other unauthorized copying of the LICENSED MATERIALS is expressly
forbidden. LICENSEE shall not otherwise reproduce, duplicate, copy or
otherwise disclose, distribute or disseminate the LICENSED MATERIALS in
any media, electronically or otherwise, except as provided for in this
Agreement.
3.2 NO LICENSE IS GRANTED HEREUNDER TO SUBLICENSE THE SOFTWARE; SUCH RIGHTS
ARE ONLY GRANTED BY MEANS OF SEPARATE PLC OEM BINARY LICENSING AGREEMENTS.
Page 1
<PAGE> 2
4. OWNERSHIP.
4.1 This Agreement conveys to LICENSEE only a limited right of use, fully
revocable in accordance with the provisions of this Agreement. Except for
such right of use, this Agreement does not transfer to LICENSEE any right,
title, or interest in the LICENSED MATERIALS.
5. NON-DISCLOSURE AGREEMENT AND INDEMNIFICATION.
5.1 PLC considers the LICENSED MATERIALS to contain valuable trade secrets and
confidential information of PLC and licensors of PLC, the unauthorized
disclosure of which could cause irreparable harm to PLC and its licensors.
LICENSEE agrees not to disclose the LICENSED MATERIALS to any third
parties and not to use the LICENSED MATERIALS other than for the purposes
authorized by this Agreement. This confidentiality obligation shall
continue after any termination of this Agreement.
5.2 LICENSEE agrees to limit access to the LICENSED MATERIALS to employees and
contractors of LICENSEE (which may include, without limitation, employees
of companies retained by LICENSEE to maintain the SOFTWARE on behalf of
LICENSEE) having a need to access the LICENSED MATERIALS and who have
executed written agreements with LICENSEE obligating them to maintain the
confidentiality of the LICENSED MATERIALS. For employees, LICENSEE's
standard employee confidentiality agreement shall suffice, a copy of which
has been attached as Exhibit B of this Agreement.
5.3 LICENSEE shall devote all reasonable efforts, consistent with the
practices and procedures under which it protects its own most valuable
proprietary information and materials, to protect the LICENSED MATERIALS
against any unauthorized or unlawful use or copying by any third party.
6. LICENSE FEES.
6.1 [***]
6.2 [***]
7. TERM OF AGREEMENT; TERMINATION.
7.1 The term of this Agreement shall commence upon execution by both parties
or on the date on which LICENSEE receives the LICENSED MATERIALS,
whichever occurs first, and shall continue until terminated as provided
below.
7.2 LICENSEE may terminate this Agreement at any time.
7.3 PLC may terminate this Agreement immediately, should LICENSEE (a)
materially fail to comply with any provision of this Agreement and does
not: (i) correct such failure within the aforesaid thirty (30) day period.
7.4 PLC may terminate this Agreement, upon giving LICENSEE written notice of
such termination, should LICENSEE materially breach any of the provisions
of this Agreement, unless such breach is curable and is cured by LICENSEE
within sixty (60) days of receiving written notice, in reasonable detail,
of such breach. Upon such termination, PLC may repossess all copies of the
LICENSED MATERIALS then in LICENSEE's possession or control, and may
withhold its performance under this Agreement. These remedies shall be
cumulative and in addition to any other remedies available to PLC.
NOTWITHSTANDING THE FOREGOING, UPON TRANSFER OF ANY COPY OF THE SOFTWARE
SOURCE CODE TO ANY UNAUTHORIZED THIRD PARTY BY LICENSEE, ITS EMPLOYEES OR
CONTRACTORS, PLC MAY TERMINATE THIS LICENSE ON NOTICE TO LICENSEE.
7.5 Upon termination of this Agreement for any reason, LICENSEE shall
immediately cease all use and destroy the LICENSED MATERIALS and any
copies thereof made by LICENSEE. Within thirty (30) days after termination
of this Agreement, LICENSEE shall certify in writing to PLC signed by
LICENSEE's duly authorized representative that LICENSEE's obligations
under this section have been fulfilled.
7.6 Notwithstanding anything in this Agreement, termination of this Agreement
shall not affect the OEM Agreement or this LICENSEE's rights thereunder.
7.7 Any obligations that by their nature continue after the termination of
this Agreement, including without limitation those specified in sections
3, 4, 5, and 6 above, shall remain binding upon the Parties after
termination of this Agreement.
[***] - Material omitted here, and filed separately with the Securities
and Exchange Commission, pursuant to confidential treatment request.
Page 2
<PAGE> 3
8. MAINTENANCE AND SUPPORT; UPDATES.
8.1 PLC is under no obligation to provide maintenance or support for the
SOFTWARE under this Agreement, and PLC has no obligation to furnish
LICENSEE with any further assistance, documentation or information of any
nature.
8.2 During the course of this Agreement, PLC agrees to update LICENSEE with
all new versions of the SOFTWARE (the "UPDATES") as they become generally
available to other customers of PLC
8.3 In consideration of the Licenses to the UPDATES granted to LICENSEE in
this Section 8, LICENSEE shall pay to PLC the annual fee (the "UPDATE
FEE") specified in Exhibit A. In addition, LICENSEE shall pay all sales,
use, excise and similar taxes on the UPDATES. The UPDATE FEE is payable
upon execution of this Agreement, and on each anniversary date of this
Agreement, until this Agreement is terminated.
9. LIMITED WARRANTY; DISCLAIMER.
9.1 PLC warrants that the SOFTWARE will perform substantially in accordance
with DOCUMENTATION accompanying the SOFTWARE for a period of ninety (90)
days from the date of shipment by PLC, when properly installed on the
Designated Equipment. PLC does not warrant that the operation of the
SOFTWARE will meet LICENSEE's requirements or operate free from error.
This limited warranty gives LICENSEE specific legal rights. LICENSEE may
have others, which vary from state to state.
9.2 PLC DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THIRD PARTY RIGHTS. NO ORAL OR
WRITTEN INFORMATION OR ADVICE GIVEN BY PLC, ITS DEALERS, DISTRIBUTORS,
AGENTS OR EMPLOYEES SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE
SCOPE OF THIS WARRANTY AND LICENSEE MAY NOT RELY ON ANY SUCH INFORMATION
OR ADVICE.
10. LICENSEE'S LIMITED REMEDIES.
10.1 PLC's entire liability and LICENSEE's exclusive remedy for breach of the
warranty in Section 9.1 shall be, at PLC's option, either (a) return of
the License Fee paid under this Agreement or (b) repair or replacement of
any SOFTWARE that does not meet he warranty provided above which is
returned to PLC. Any replacement SOFTWARE will be warranted for the
remainder of the original warranty period or thirty (30) days, whichever
is longer. THESE REMEDIES ARE NOT AVAILABLE OUTSIDE OF THE UNITED STATES
OF AMERICA.
10.2 IN NO EVENT SHALL PLC BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL OR
SPECIAL DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS
OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION,
AND THE LIKE) ARISING OUT OF THE USE OF OR INABILITY TO USE OBJECT CODES
BASED UPON THE SOFTWARE EVEN IF THE LICENSEE HAS ADVISED PLC OF THE
POSSIBILITY OF SUCH DAMAGES.
10.3 IN NO EVENT SHALL LICENSEE BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL OR
SPECIAL DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS
OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION,
AND THE LIKE) ARISING OUT OF THIS AGREEMENT.
10.4 THE LIABILITY OF PLC FOR ANY CLAIMS ARISING OUT OF THIS AGREEMENT OR USE
OF THE LICENSED MATERIALS, REGARDLESS OF THE FORM OF ACTION, SHALL NOT
EXCEED THE LICENSE FEE FOR THE LICENSED MATERIALS.
10.5 THE LIMITED WARRANTY, LIMITED REMEDIES AND LIMITED LIABILITY ARE
FUNDAMENTAL ELEMENTS OF THE BASIS OF THE BARGAIN BETWEEN PLC AND LICENSEE.
PLC WOULD NOT BE ABLE TO PROVIDE THE LICENSED MATERIALS WITHOUT SUCH
LIMITATIONS.
11. INFRINGEMENT INDEMNITY.
11.1 In the event that the SOFTWARE is, or in PLC's sole opinion, is likely to
become the subject of a claim of infringement of a patent, trade secret,
copyright or other intellectual property right, PLC shall, at its option
and expense, (a) procure for LICENSEE the right to continue using the
SOFTWARE or (b) replace or modify the SOFTWARE with a version that is
non-infringing, but performing substantially equivalent functions. If
neither of the foregoing alternatives is reasonably available to PLC and,
as a result of such a claim of infringement, use of the SOFTWARE is
permanently enjoined, the PLC may terminate this Agreement upon thirty
(30) days written notice to LICENSEE.
Page 3
<PAGE> 4
11.2 PLC will defend, at its own expense, any action brought against LICENSEE
to the extent that it is based on a claim that the SOFTWARE, or the use of
the SOFTWARE pursuant to this Agreement, infringes any patent, trade
secret, copyright, or other intellectual property right. PLC will
indemnify LICENSEE from any damages and fees awarded against LICENSEE and
will hold LICENSEE harmless against all claims which are attributable to
such claim, provided that LICENSEE notifies PLC promptly in writing of the
claim. LICENSEE shall permit PLC to defend, compromise or settle the claim
and shall, at PLC's expense, provide all available information, assistance
and authority to enable PLC to do so. So long as PLC performs its
obligations pursuant to this section, LICENSEE shall have no authority to
settle any claim on behalf of PLC. LICENSEE shall be entitled to
participate in the defense of any such claim or action, at its expense,
through counsel of its choosing.
11.3 PLC shall have no liability for any claim of infringement to the extent
caused by the (a) use of other than the latest release of the SOFTWARE
from PLC, if such infringement could have been avoided by the use of the
then latest release of the SOFTWARE and such latest version had been
available to LICENSEE under this Agreement, (b) use or combination of the
SOFTWARE with software, hardware or other materials not provided by PLC,
or (c) modification of the SOFTWARE by any person other than PLC.
12. PLC'S REMEDY FOR UNAUTHORIZED USE.
12.1 The copying, use or distribution of the LICENSED MATERIALS in a manner
inconsistent with any provision of this Agreement may cause irreparable
injury to PLC for which PLC may not have an adequate remedy at law. PLC
shall be entitled to seek extraordinary relief in court, including but not
limited to temporary restraining orders, preliminary injunctions, and
permanent injunctions, without necessity of posting bond or security,
which is expressly waived by LICENSEE.
13. MISCELLANEOUS.
13.1 Any party in material default under this Agreement agrees to pay the
non-defaulting party its reasonable expenses, including attorneys' fees,
in enforcing its rights under this Agreement.
13.2 Any dispute relating to the terms, interpretation or performance of the
Agreement (other than claims for preliminary injunctive relief or other
pre-judgment remedies) shall be resolved at the request of either party
through binding arbitration. Arbitration shall be conducted in the county
in which the responding party is headquartered under the rules and
procedures of the American Arbitration Association ("AAA"). The parties
shall request that the AAA appoint a panel of three arbitrators and, if
feasible, include one arbitrator who shall posses knowledge of computer
software; however the arbitration shall proceed even if such a person is
unavailable.
13.3 LICENSEE may not assign or transfer its rights or obligations under this
Agreement unless they are assigned under in conjunction with, and under
the same terms and conditions as, an assignment of the OEM Agreement
between the parties.
13.4 PLC agrees that, as a condition of any sale of PLC assets that include the
SOFTWARE, PLC will require that the purchaser take assignment of this
Agreement, so that all of LICENSEE's rights pursuant to this Agreement
survive, and the purchaser assumes all of PLC's obligations pursuant to
this Agreement.
13.5 This Agreement shall be governed and construed in accordance with the
substantive laws of the State of New Jersey. LICENSEE consents to
jurisdiction by the state and federal courts sitting in the State of New
Jersey. If either PLC or LICENSEE employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees.
13.6 If any provision or provisions of this Agreement are determined to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement will not in
any way be affected or impaired thereby.
13.7 The parties are independent contractors of one another. Nothing herein
shall be deemed to create any relationship of agency, partnership, or
joint venture between the parties.
13.8 All remedies available to either party for one or more breaches by the
other party shall be cumulative and may be exercised separately or
concurrently without waiver of any other remedies. The failure of either
party to act on a breach of this Agreement by the other
Page 4
<PAGE> 5
party shall not be deemed a waiver of said breach or a waiver of future
breaches, unless such waiver is in writing and is signed by the party
against whom enforcement is sought.
13.9 All notices required or permitted hereunder shall be in writing and shall
be addressed to the appropriate party as set forth above, unless another
address shall have been designated, and shall be delivered by hand or by
registered or certified mail, postage prepaid.
13.10 This Agreement constitutes the entire agreement of the parties regarding
the LICENSED MATERIALS source code and supersedes all prior
representations, proposals, discussions, and communications, whether oral
or in writing, with respect thereto. This Agreement may be modified only
by a written instrument signed by the party against whom enforcement
thereof is sought.
Agreed to by the parties' duly authorized representatives.
for LICENSEE:
-----------------------------------
Signature
-----------------------------------
Name (Please print)
-----------------------------------
Title
-----------------------------------
Date
for PLC: -----------------------------------
Signature
-----------------------------------
Name (Please print)
-----------------------------------
Title
-----------------------------------
Date
Page 5
<PAGE> 6
EXHIBIT A
<TABLE>
<CAPTION>
---------------------------------------------------------------
ITEMIZED LICENSE FEES [***]
---------------------------------------------------------------
First
Designated Each Additional
Product Site Designated Site
------- ---------- ---------------
<S> <C> <C>
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
LICENSE FEE [***] [***]
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
ITEMIZED UPGRADE FEES [***]
---------------------------------------------------------------
First
Designated Each Additional
Product Site Designated Site
------- ---------- ---------------
<S> <C> <C>
[***] [***] [***
[***] [***] [***]
[***] [***] [***]
UPGRADE FEE [***] [***]
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
ITEMIZED UPDATE FEES [***]
---------------------------------------------------------------
First
Designated Each Additional
Product Site Designated Site
------- ---------- ---------------
<S> <C> <C>
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
UPDATE FEE [***] [***]
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
ITEMIZED UPDATE UPGRADE FEES [***]
---------------------------------------------------------------
First
Designated Each Additional
Product Site Designated Site
------- ---------- ---------------
<S> <C> <C>
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
UPGRADE FEE [***] [***]
</TABLE>
PRODUCTS: As defined in the Binary License Agreement between
the parties:
- [***]
- [***]
- [***]
PURPOSES/LIMITATIONS: Support of SOFTWARE.
Compilation of the SOFTWARE for distribution under
the OEM Agreement.
[***] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
Page 6
<PAGE> 7
DESIGNATED SITES: Auspex Systems, Inc.
2300 Central Expressway
Santa Clara, CA 95050
DESIGNATED EQUIPMENT
HARDWARE:
----------------------------------------
SERIAL NO:
----------------------------------------
Page 7
<PAGE> 8
EXHIBIT B
Attach Employment Agreement Here
Page 8
<PAGE> 9
EXHIBIT 10.33
Read-only Source License Agreement
This Agreement is made and entered by and between Programmed Logic Corporation
(hereinafter "PLC") a New Jersey corporation with offices at 200 Cottontail
Lane, Somerset, NJ 08873, and AUSPEX SYSTEMS, INC., a Delaware corporation with
offices at 2300 Central Expressway, Santa Clara, CA 95050 (hereinafter
"LICENSEE").
RECITALS
PLC has developed certain computer software, which embodies and reflects certain
trade secrets of and confidential information to PLC. LICENSEE desires to
license the source code for that software from PLC, subject to the following
terms and conditions.
The parties have entered into a separate Bundled Hardware OEM Binary License
Agreement (the "OEM Agreement"), pursuant to which LICENSEE is authorized to
distribute the SOFTWARE in object code form.
AGREEMENT
1. DEFINITIONS.
1.1 SOFTWARE means a copy of the source code to the PLC PRODUCTS specified on
Exhibit A of this Agreement (including all comments), any modified
versions of such SOFTWARE provided by PLC, any object code created using
any portion of such SOFTWARE.
1.2 DOCUMENTATION means any related documentation of the SOFTWARE provided to
LICENSEE by PLC with the SOFTWARE under this Agreement, which shall
include, without limitation (1) installation and documentation notes; (2)
release notes (specific to the release of the SOFTWARE provided); and (3)
a user manual for the SOFTWARE.
1.3 LICENSED MATERIALS means collectively (a) the SOFTWARE, (b) the
DOCUMENTATION, (c) any available internal documentation for the SOFTWARE
source code, including design documentation and implementation notes,
subject to PLC's approval on a case by case basis, and (d) the source code
for any available tests for the SOFTWARE, subject to PLC's approval on a
case by case basis.
2. GRANT OF LICENSE.
2.1 PLC grants to LICENSEE a non-exclusive, non-transferable, non-assignable,
and restricted license to use, and where applicable, to compile and the
LICENSED MATERIALS only for the Purposes and subject to any additional
Limitations set forth in Exhibit A, and only at the Designated Sites and
on the Designated Equipment set forth in Exhibit A. Without limiting the
foregoing, there shall be no access to the LICENSED MATERIALS by any
computers or terminals located off of the Designated Sites.
2.2 LICENSEE may make one copy of the SOFTWARE in tangible form for purposes
of backup, provided that such copy includes a reproduction of any notices
appearing in or on the SOFTWARE.
2.3 No license is granted for any other purpose.
3. ADDITIONAL RESTRICTIONS.
3.1 Any other unauthorized copying of the LICENSED MATERIALS is expressly
forbidden. LICENSEE shall not otherwise reproduce, duplicate, copy or
otherwise disclose, distribute or disseminate the LICENSED MATERIALS in
any media, electronically or otherwise, except as provided for in this
Agreement.
3.2 NO LICENSE IS GRANTED HEREUNDER TO SUBLICENSE THE SOFTWARE; SUCH RIGHTS
ARE ONLY GRANTED BY MEANS OF SEPARATE PLC OEM BINARY LICENSING AGREEMENTS.
4. OWNERSHIP.
4.1 This Agreement conveys to LICENSEE only a limited right of use, fully
revocable in accordance with the provisions of this Agreement. Except for
such right of use, this Agreement does not transfer to LICENSEE any right,
title, or interest in the LICENSED MATERIALS.
5. NON-DISCLOSURE AGREEMENT AND INDEMNIFICATION.
5.1 PLC considers the LICENSED MATERIALS to contain valuable trade secrets and
confidential information of PLC and licensors of PLC, the unauthorized
disclosure of which could cause
Page 1
<PAGE> 10
irreparable harm to PLC and its licensors. LICENSEE agrees not to disclose
the LICENSED MATERIALS to any third parties and not to use the LICENSED
MATERIALS other than for the purposes authorized by this Agreement. This
confidentiality obligation shall continue after any termination of this
Agreement.
5.2 LICENSEE agrees to limit access to the LICENSED MATERIALS to employees and
contractors of LICENSEE (which may include, without limitation, employees
of companies retained by LICENSEE to maintain the SOFTWARE on behalf of
LICENSEE) having a need to access the LICENSED MATERIALS and who have
executed written agreements with LICENSEE obligating them to maintain the
confidentiality of the LICENSED MATERIALS. For employees, LICENSEE's
standard employee confidentiality agreement shall suffice, a copy of which
has been attached as Exhibit B of this Agreement.
5.3 LICENSEE shall devote all reasonable efforts, consistent with the
practices and procedures under which it protects its own most valuable
proprietary information and materials, to protect the LICENSED MATERIALS
against any unauthorized or unlawful use or copying by any third party.
6. LICENSE FEES.
6.1 In consideration of the Licenses to the LICENSED MATERIALS granted to
LICENSEE in this Agreement, LICENSEE shall pay to PLC the License Fees
specified on Exhibit A of this Agreement. In addition, LICENSEE shall pay
all sales, use, excise and similar taxes on this payment. The License Fee
is payable upon execution of this Agreement.
6.2 For a period of one year after the execution of this agreement LICENSEE
may at its option upgrade this agreement to PLC's then standard source
code agreement that allows LICENSEE to make and own modifications and
enhancements they make to the source code licensed in this Agreement. If
this option to upgrade is exercised, LICENSEE will pay the UPGRADE FEE
specified in Exhibit A of this Agreement.
7. TERM OF AGREEMENT; TERMINATION.
7.1 The term of this Agreement shall commence upon execution by both
parties or on the date on which LICENSEE receives the LICENSED MATERIALS,
whichever occurs first, and shall continue until terminated as provided
below.
7.2 LICENSEE may terminate this Agreement at any time.
7.3 PLC may terminate this Agreement immediately, should LICENSEE (a)
materially fail to comply with any provision of this Agreement and does
not: (i) correct such failure within the aforesaid thirty (30) day period.
7.4 PLC may terminate this Agreement, upon giving LICENSEE written notice of
such termination, should LICENSEE materially breach any of the provisions
of this Agreement, unless such breach is curable and is cured by LICENSEE
within sixty (60) days of receiving written notice, in reasonable detail,
of such breach. Upon such termination, PLC may repossess all copies of the
LICENSED MATERIALS then in LICENSEE's possession or control, and may
withhold its performance under this Agreement. These remedies shall be
cumulative and in addition to any other remedies available to PLC.
NOTWITHSTANDING THE FOREGOING, UPON TRANSFER OF ANY COPY OF THE SOFTWARE
SOURCE CODE TO ANY UNAUTHORIZED THIRD PARTY BY LICENSEE, ITS EMPLOYEES OR
CONTRACTORS, PLC MAY TERMINATE THIS LICENSE ON NOTICE TO LICENSEE.
7.5 Upon termination of this Agreement for any reason, LICENSEE shall
immediately cease all use and destroy the LICENSED MATERIALS and any
copies thereof made by LICENSEE. Within thirty (30) days after termination
of this Agreement, LICENSEE shall certify in writing to PLC signed by
LICENSEE's duly authorized representative that LICENSEE's obligations
under this section have been fulfilled.
7.6 Notwithstanding anything in this Agreement, termination of this Agreement
shall not affect the OEM Agreement or this LICENSEE's rights thereunder.
7.7 Any obligations that by their nature continue after the termination of
this Agreement, including without limitation those specified in sections
3, 4, 5, and 6 above, shall remain binding upon the Parties after
termination of this Agreement.
8. MAINTENANCE AND SUPPORT; UPDATES.
8.1 PLC is under no obligation to provide maintenance or support for the
SOFTWARE under this Agreement, and PLC has no obligation to fur-
Page 2
<PAGE> 11
nish LICENSEE with any further assistance, documentation or information
of any nature.
8.2 During the course of this Agreement, PLC agrees to update LICENSEE with
all new versions of the SOFTWARE (the "UPDATES") as they become generally
available to other customers of PLC.
8.3 In consideration of the Licenses to the UPDATES granted to LICENSEE in
this Section 8, LICENSEE shall pay to PLC the annual fee (the "UPDATE
FEE") specified in Exhibit A. In addition, LICENSEE shall pay all sales,
use, excise and similar taxes on the UPDATES. The UPDATE FEE is payable
upon execution of this Agreement, and on each anniversary date of this
Agreement, until this Agreement is terminated.
8.4 If LICENSEE chooses to upgrade the Read-only License granted in the
Agreement to a Modifiable License, the UPDATE FEE shall be increased to
the UPDATE UPGRADE FEE specified in Exhibit A.
9. LIMITED WARRANTY; DISCLAIMER.
9.1 PLC warrants that the SOFTWARE will perform substantially in accordance
with the DOCUMENTATION accompanying the SOFTWARE for a period of ninety
(90) days from the date of shipment by PLC, when properly installed on the
Designated Equipment. PLC does not warrant that the operation of the
SOFTWARE will meet LICENSEE's requirements or operate free from error.
This limited warranty gives LICENSEE specific legal rights. LICENSEE may
have others, which vary from state to state.
9.2 PLC DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THIRD PARTY RIGHTS. NO ORAL OR
WRITTEN INFORMATION OR ADVICE GIVEN BY PLC, ITS DEALERS, DISTRIBUTORS,
AGENTS OR EMPLOYEES SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE
SCOPE OF THIS WARRANTY AND LICENSEE MAY NOT RELY ON ANY SUCH INFORMATION
OR ADVICE.
10. LICENSEE'S LIMITED REMEDIES.
10.1 PLC's entire liability and LICENSEE's exclusive remedy for breach of the
warranty in Section 9.1 shall be, at PLC's option, either (a) return of
the License Fee paid under this Agreement or (b) repair or replacement of
any SOFTWARE that does not meet he warranty provided above which is
returned to PLC. Any replacement SOFTWARE will be warranted for the
remainder of the original warranty period or thirty (30) days, whichever
is longer. THESE REMEDIES ARE NOT AVAILABLE OUTSIDE OF THE UNITED STATES
OF AMERICA.
10.2 IN NO EVENT SHALL PLC BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL OR
SPECIAL DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS
OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION,
AND THE LIKE) ARISING OUT OF THE USE OF OR INABILITY TO USE OBJECT CODES
BASED UPON THE SOFTWARE EVEN IF THE LICENSEE HAS ADVISED PLC OF THE
POSSIBILITY OF SUCH DAMAGES.
10.3 IN NO EVENT SHALL LICENSEE BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL OR
SPECIAL DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS
OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION,
AND THE LIKE) ARISING OUT OF THIS AGREEMENT.
10.4 THE LIABILITY OF PLC FOR ANY CLAIMS ARISING OUT OF THIS AGREEMENT OR USE
OF THE LICENSED MATERIALS, REGARDLESS OF THE FORM OF ACTION, SHALL NOT
EXCEED THE LICENSE FEE FOR THE LICENSED MATERIALS.
10.5 THE LIMITED WARRANTY, LIMITED REMEDIES AND LIMITED LIABILITY ARE
FUNDAMENTAL ELEMENTS OF THE BASIS OF THE BARGAIN BETWEEN PLC AND LICENSEE.
PLC WOULD NOT BE ABLE TO PROVIDE THE LICENSED MATERIALS WITHOUT SUCH
LIMITATIONS.
11. INFRINGEMENT INDEMNITY.
11.1 In the event that the SOFTWARE is, or in PLC's sole opinion, is likely to
become the subject of a claim of infringement of a patent, trade secret,
copyright or other intellectual property right, PLC shall, at its option
and expense, (a) procure for LICENSEE the right to continue using the
SOFTWARE or (b) replace or modify the SOFTWARE with a version that is
non-infringing, but performing substantially equivalent functions. If
neither of the foregoing alternatives is reasonably available to PLC and,
as a result of such a claim of infringement, use of the SOFTWARE is
permanently enjoined, the PLC may terminate this Agreement
Page 3
<PAGE> 12
upon thirty (30) days written notice to LICENSEE.
11.2 PLC will defend, at its own expense, any action brought against LICENSEE
to the extent that it is based on a claim that the SOFTWARE, or the use of
the SOFTWARE pursuant to this Agreement, infringes any patent, trade
secret, copyright, or other intellectual property right. PLC will
indemnify LICENSEE from any damages and fees awarded against LICENSEE and
will hold LICENSEE harmless against all claims which are attributable to
such claim, provided that LICENSEE notifies PLC promptly in writing of the
claim. LICENSEE shall permit PLC to defend, compromise or settle the claim
and shall, at PLC's expense, provide all available information, assistance
and authority to enable PLC to do so. So long as PLC performs its
obligations pursuant to this section, LICENSEE shall have no authority to
settle any claim on behalf of PLC. LICENSEE shall be entitled to
participate in the defense of any such claim or action, at its expense,
through counsel of its choosing.
11.3 PLC shall have no liability for any claim of infringement to the extent
caused by the (a) use of other than the latest release of the SOFTWARE
from PLC, if such infringement could have been avoided by the use of the
then latest release of the SOFTWARE and such latest version had been
available to LICENSEE under this Agreement, (b) use or combination of the
SOFTWARE with software, hardware or other materials not provided by PLC,
or (c) modification of the SOFTWARE by any person other than PLC.
12. PLC'S REMEDY FOR UNAUTHORIZED USE.
12.1 The copying, use or distribution of the LICENSED MATERIALS in a manner
inconsistent with any provision of this Agreement may cause irreparable
injury to PLC for which PLC may not have an adequate remedy at law. PLC
shall be entitled to seek extraordinary relief in court, including but not
limited to temporary restraining orders, preliminary injunctions, and
permanent injunctions, without necessity of posting bond or security,
which is expressly waived by LICENSEE.
13. MISCELLANEOUS.
13.1 Any party in material default under this Agreement agrees to pay the
non-defaulting party its reasonable expenses, including attorneys' fees,
in enforcing its rights under this Agreement.
13.2 Any dispute relating to the terms, interpretation or performance of the
Agreement (other than claims for preliminary injunctive relief or other
pre-judgment remedies) shall be resolved at the request of either party
through binding arbitration. Arbitration shall be conducted in the county
in which the responding party is headquartered under the rules and
procedures of the American Arbitration Association ("AAA"). The parties
shall request that the AAA appoint a panel of three arbitrators and, if
feasible, include one arbitrator who shall possess knowledge of computer
software; however the arbitration shall proceed even if such a person is
unavailable.
13.3 LICENSEE may not assign or transfer its rights or obligations under this
Agreement unless they are assigned under in conjunction with, and under
the same terms and conditions as, an assignment of the OEM Agreement
between the parties.
13.4 PLC agrees that, as a condition of any sale of PLC assets that include the
SOFTWARE, PLC will require that the purchaser take assignment of this
Agreement, so that all of LICENSEE's rights pursuant to this Agreement
survive, and the purchaser assumes all of PLC's obligations pursuant to
this Agreement.
13.5 This Agreement shall be governed and construed in accordance with the
substantive laws of the State of New Jersey. LICENSEE consents to
jurisdiction by the state and federal courts sitting in the State of New
Jersey. If either PLC or LICENSEE employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees.
13.6 If any provision or provisions of this Agreement are determined to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement will not in
any way be affected or impaired thereby.
13.7 The parties are independent contractors of one another. Nothing herein
shall be deemed to create any relationship of agency, partnership, or
joint venture between the parties.
13.8 All remedies available to either party for one or more breaches by the
other party shall be cumulative and may be exercised separately
Page 4
<PAGE> 13
or concurrently without waiver of any other remedies. The failure of
either party to act on a breach of this Agreement by the other party shall
not be deemed a waiver of said breach or a waiver of future breaches,
unless such waiver is in writing and is signed by the party against whom
enforcement is sought.
13.9 All notices required or permitted hereunder shall be in writing and shall
be addressed to the appropriate party as set forth above, unless another
address shall have been designated, and shall be delivered by hand or by
registered or certified mail, postage prepaid.
13.10 This Agreement constitutes the entire agreement of the parties regarding
the LICENSED MATERIALS source code and supersedes all prior
representations, proposals, discussions, and communications, whether oral
or in writing, with respect thereto. This Agreement may be modified only
by a written instrument signed by the party against whom enforcement
thereof is sought.
Agreed to by the parties' duly authorized representatives.
for LICENSEE:
-----------------------------------
Signature
-----------------------------------
Name (Please print)
-----------------------------------
Title
-----------------------------------
Date
for PLC: -----------------------------------
Signature
-----------------------------------
Name (Please print)
-----------------------------------
Title
-----------------------------------
Date
Page 5
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT A
FEES:
-----------------------------------------------------------------------
ITEMIZED LICENSE FEES (paid once)
-----------------------------------------------------------------------
Product First Designated Each Additional Designated
Site Site
-----------------------------------------------------------------------
<S> <C> <C> <C>
[***]
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
ITEMIZED UPGRADE FEES (paid once)
---------------------------------------------------------------------
First Designated Each Additional Designated
Product Site Site
----------------------------------------------------------------------
[***]
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
ITEMIZED UPDATE FEES (paid annually)
---------------------------------------------------------------------
Product First Designated Each Additional Designated
Site Site
----------------------------------------------------------------------
[***]
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
ITEMIZED UPDATE UPGRADE FEES (paid annually)
----------------------------------------------------------------------
Product First Designated Each Additional Designated
Site Site
----------------------------------------------------------------------
[***]
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
PRODUCTS: As defined in the Binary License Agreement
between the parties:
- [***]
PURPOSES/LIMITATIONS: Support of licensed products.
Compilation of the SOFTWARE for distribution under
the OEM Agreement.
DESIGNATED SITES: Auspex Systems, Inc.
2300 Central Expressway
Santa Clara, CA 95050
DESIGNATED EQUIPMENT
HARDWARE:_____________________________________
SERIAL NO:
Page 6
<PAGE> 15
[***] - Material omitted here, and fied separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
Page 7
<PAGE> 16
EXHIBIT B
Attach Employment Agreements Here
Page 8
<PAGE> 17
EXHIBIT 10.33
PROGRAMMED LOGIC CORPORATION
BUNDLED HARDWARE OEM BINARY LICENSE AGREEMENT
This Agreement is made and entered into on ____________________ by and between
Programmed Logic Corporation (hereinafter "PLC"), a New Jersey corporation with
offices at 200 Cottontail Lane, Somerset, NJ 08873; and Auspex Systems, Inc.
(hereinafter "LICENSEE"), a Delaware corporation with offices at 2300 Central
Expressway, Santa Clara, CA 95050.
RECITALS
1. PLC represents that it is the owner of certain software products and related
documentation (the "LICENSED SOFTWARE" defined below).
2. LICENSEE desires to obtain from PLC and PLC desires to grant to LICENSEE the
right to license the LICENSED SOFTWARE, on the terms and conditions set out
below.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in the Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, LICENSEE and PLC,
intending to be legally bound, hereby make the following agreements.
AGREEMENT
1. DEFINITIONS
1.1 CUSTOMER means any third party that receives the LICENSED SOFTWARE from
either LICENSEE or one of LICENSEE's SUBSIDIARIES under the terms of this
Agreement.
1.2 COMPETITIVE UPDATE means an UPDATE that continues to maintain the
competitive nature of the LICENSED SOFTWARE in the marketplace, when such
LICENSED SOFTWARE is compared to comparably priced alternatives.
1.3 DISTRIBUTOR means any third party authorized by LICENSEE to distribute
LICENSED SYSTEMS to any other third party.
1.4 LICENSED DOCUMENTATION means any documentation for the LICENSED SOFTWARE
supplied to LICENSEE by PLC under this Agreement, which shall include customary
user manuals and other documentation.
1.5 LICENSED SOFTWARE means the object code for the PLC products listed in
Exhibit B of this Agreement, the enhancements listed in Exhibit C of this
Agreement, and all future UPDATES. If LICENSEE is authorized (pursuant to a
source code license with PLC or otherwise) to modify the source code of the
LICENSED SOFTWARE, "LICENSED SOFTWARE" shall also include modified versions
prepared by or for LICENSEE pursuant to such authorization.
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1.6 LICENSED SYSTEM means a system conforming to the specification set forth in
Exhibit A of this Agreement that is shipped to a third party during the term of
this Agreement.
1.7 LICENSED UPGRADE means a version of the LICENSED SOFTWARE distributed by
LICENSEE for use on a LICENSED SYSTEM that upgrades the functionality of a prior
version of the LICENSED SOFTWARE licensed for the same LICENSED SYSTEM, and
which is derived from a new version, as indicated by an increment of the first
digit of the LICENSED SOFTWARE's PLC-specified version number.
UPDATE means a later release of the LICENSED SOFTWARE that is not reasonably
designated by PLC as a new product. Except for those specific enhancements
agreed in Exhibit C hereto, and for those opportunities for LICENSEE's inputs to
updates incorporated in Section 6 hereto PLC shall remain the sole determiner of
the designation of an UPDATE.
2. GRANT OF RIGHTS.
2.1 PLC grants to LICENSEE during the term of this Agreement:
2.1.1 A worldwide right to use the LICENSED SOFTWARE on LICENSED
SYSTEMs.
2.1.2 a worldwide, exclusive right to make, have made and distribute
copies of the LICENSED SOFTWARE to CUSTOMERs anywhere in the world
(subject to any U.S. government export requirements) for use by such
CUSTOMERs only and on a LICENSED SYSTEM only. PLC shall not distribute,
or authorize any third party to distribute, LICENSED SOFTWARE to use on
any LICENSED SYSTEM. LICENSEE agrees that such copies shall be complete
and unaltered copies of the LICENSED SOFTWARE, and that LICENSEE shall
use agreements with such end user CUSTOMERs prior to or at the time of
distributing each copy of the LICENSED SOFTWARE that provide that:
(i) only a non-exclusive right to use such copy of the LICENSED
SOFTWARE on one LICENSED SYSTEM at a time is granted to such
CUSTOMERs;
(ii) such CUSTOMERs will not copy the LICENSED SOFTWARE except as
necessary (a) for installation of the LICENSED SOFTWARE on
one such LICENSED SYSTEM, and (b) to create copies required
by CUSTOMER for archival, backup, or disaster recovery
purposes;
(iii) such CUSTOMERs will not transfer the LICENSED SOFTWARE to any
other party except when transferring it with a LICENSED
SYSTEM;
(iv) such CUSTOMERs will not export or re-export the LICENSED
SOFTWARE without the appropriate United States or foreign
government licenses; and
(v) such CUSTOMERs will not modify, reverse compile or
disassemble the LICENSED SOFTWARE.
In the United States and in other jurisdictions where an enforceable
copyright covering the LICENSED SOFTWARE exists, such agreement may be
either a written agreement signed by the CUSTOMER or a written agreement
on or accompanying the package containing the LICENSED SOFTWARE, that
states that the CUSTOMER accepts the agreement by opening the package
and that complies with applicable law relating to agreements of such
type. In all other LICENSEE shall license the software in the same
manner as it does its other software products, which may be a package
license as set forth herein above, or a written agreement signed by the
CUSTOMER;
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2.1.3 a worldwide, non-exclusive right to make copies of the LICENSED
DOCUMENTATION and to furnish such copies of the LICENSED DOCUMENTATION
to CUSTOMERs anywhere in the world (subject to any U.S. government
export requirements) for use by such CUSTOMERs who have also licensed
the LICENSED SOFTWARE only;
2.1.4 a worldwide, non-exclusive right to modify the LICENSED DOCUMENTATION,
provided that such modified LICENSED DOCUMENTATION is subject to all the
terms and conditions of the original LICENSED DOCUMENTATION as set forth
in this Agreement, and provided that no modification is made to the
content of any Copyright and Trademark notices in the LICENSED
DOCUMENTATION without PLC's written consent;
2.1.5 a worldwide, non-exclusive right to use PLC's trademarks for the
LICENSED SOFTWARE in advertising, publicity, packaging, labeling or
other printed material, provided that a) such trademarks are used solely
to identify the LICENSED SOFTWARE, and b) PLC is properly identified as
the owner of such trademarks in such printed material.
2.1.6 A worldwide, exclusive right to sublicense the rights granted in
paragraphs 2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.1.5 above to DISTRIBUTORS,
under the same terms and subject to the same limitations and obligations
specified for LICENSEE in the aforementioned paragraphs.
2.1.7 A worldwide, non-exclusive right to rename the LICENSED SOFTWARE to
enable LICENSEE to achieve market differentiation and product
positioning, subject to the approval of each such name by PLC, which
shall not be unreasonably withheld.
2.2 LICENSEE shall use commercially reasonably efforts to enforce
the agreements with the CUSTOMERs specified in this Agreement, with
respect to protection of the LICENSED SOFTWARE.
3. DEVELOPMENT
3.1 PLC agrees to create an UPDATE of the LICENSED SOFTWARE (including the
corresponding modifications of the LICENSED DOCUMENTATION) in accordance with
Exhibit C hereto.
3.2 Licensee shall pay to PLC a one-time development fee (the "DEVELOPMENT FEE")
of [***]. The DEVELOPMENT FEE will be payable according to the following
schedule:
Upon execution of this Agreement [***]
One month after execution of this Agreement [***]
Two months after execution of this Agreement [***]
Three months after execution of this Agreement [***]
Four months after execution of this [***]
3.3 LICENSEE may credit [***] of the DEVELOPMENT FEE towards any LICENSE FEES
payable under this Agreement.
[***] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
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3.4 Upon delivery to LICENSEE of the UPDATE, LICENSEE shall evaluate that UPDATE
for conformity to the requirements specified in Exhibit C of this Agreement.
LICENSEE shall provide PLC within six (6) months after delivery of such
materials with written acceptance thereof, or a statement of defects to be
corrected. PLC shall correct all reproducible defects and return the corrected
Enhancement for re-testing and reevaluation, and LICENSEE shall within
forty-five (45) days after any such redelivery provide PLC with written
acceptance or a statement of continuing defects. Failure by LICENSEE to provide
PLC with any of the above notifications shall be deemed as an acceptance by
LICENSEE of the UPDATE. If, after twelve (12) months after this Agreement is
executed, PLC fails to correct all reproducible defects reported by LICENSEE
prior to LICENSEE's acceptance of the UPDATE, then LICENSEE may, upon written
notice to PLC, elect to terminate this development. Upon any such termination,
PLC shall promptly refund to LICENSEE all amounts paid to PLC pursuant to this
Exhibit. Until such election to terminate by LICENSEE, PLC shall continue to
attempt to correct the defects and provide conforming Enhancements according to
the above procedure.
3.5 Licensee agrees to make available to PLC at PLC's place of business during
the term of this agreement the following instrumentalities, which will be
returned to Licensee upon termination of this agreement:
Any and all documentation required by PLC to understand the layout of
LICENSEE's UFS-based file system partition layout sufficient to perform
the work specified in Exhibit C, in a format to be mutually agreed upon
by both parties
4. LICENSEE FEES
4.1 In consideration for the licenses granted in this Agreement, LICENSEE agrees
to pay to PLC a LICENSE FEE for each LICENSED SYSTEM shipped by LICENSEE or
LICENSEE's SUBSIDIARIES to CUSTOMERS, according to the schedule shown in Exhibit
D of this Agreement. LICENSE FEEs that accrue to PLC during each fiscal quarter
of this Agreement shall be payable net 30 days of the end of such fiscal
quarter.
4.2 No additional fee is payable for the transfer of the LICENSED software from
a CUSTOMER to any other third party, provided that (a) the CUSTOMER does not
retain any portion of the LICENSED SOFTWARE after such transfer, (b) the
LICENSED SOFTWARE is transferred with the LICENSED SYSTEM, and (c) an agreement
with the third party is obtained by CUSTOMER in accordance with Section 2.1.1
above.
5. RECORDS AND REPORTS
5.1 Within thirty (30) days after the end of each fiscal quarter, commencing
with the fiscal quarter during which this Agreement first becomes effective,
LICENSEE shall furnish to PLC a written statement signed by an authorized
representative of LICENSEE identifying:
The number of LICENSED SYSTEMs and LICENSED UPGRADEs shipped by LICENSEE
to CUSTOMERs during such fiscal quarter;
The total LICENSE FEEs owed to PLC for such fiscal quarter;
5.2 LICENSEE shall keep full, clear and accurate records sufficient to
prepare the statements to PLC required by this Agreement. Such records shall be
retained for a period of five (5) full calendar years from the date said
records are acquired by LICENSEE.
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5.3 PLC shall have the right, using employees of an independent CPA
firm, to make an examination and audit, during normal business hours, not more
frequently than annually, of records kept pursuant to this Agreement by
LICENSEE. Such audits will be held in confidence and the auditor will disclose
to PLC only that information necessary to verify LICENSEE's compliance with its
obligations herein. Prompt adjustment shall be made by the proper party to
compensate for any errors or omissions disclosed by such examination or audit.
Neither such right to examine and audit nor the right to receive such adjustment
shall be affected by any statement to the contrary, appearing on checks or
otherwise, unless such statement appears in a letter, signed by the party having
such right and delivered to the other party, expressly waving such right.
5.4 All costs of audit or inspection shall be borne by PLC except that such
expenses shall be borne by LICENSEE in the event that any audit determines that
LICENSEE has underpaid royalties in any one-year period in excess of five (5)
percent.
6.MAINTENANCE AND SUPPORT
6.1 LICENSEE agrees to assume primary responsibility, at
LICENSEE's expense, for providing technical support for the LICENSED SOFTWARE.
6.2 LICENSEE agrees to loan to PLC during the term of this Agreement a sample
LICENSED SYSTEM (the "SUPPORT SYSTEM") for PLC's use at PLC's principal place of
business and only to provide LICENSED SOFTWARE development or support to
LICENSEE. The SUPPORT SYSTEM shall remain the property of LICENSEE and shall be
returned to LICENSEE in good condition, subject to normal wear and tear, upon
any termination of PLC's LICENSED SOFTWARE support of LICENSEE.
6.3 LICENSEE
agrees to list and document all reproducible errors in the LICENSED SOFTWARE
discovered by LICENSEE or reported to LICENSEE, and to forward such information
to PLC on a regular and timely basis. LICENSEE shall use reasonable efforts to
reduce the test case to the smallest practical size before submitting such
errors. Errors so reported shall be categorized as follows:
Priority A errors errors which cause loss of a major feature,
file system corruption, data loss, or a system
crash or hang.
Priority B errors errors in critical features of the product
preventing normal operation.
Priority C errors errors in non-critical features, or for
which a convenient or reasonable work-around
exists.
6.4 For all errors identified by LICENSEE that can be reproduced on a LICENSED
SYSTEM, PLC agrees to provide LICENSEE with the following secondary technical
support:
PLC will use its best efforts to evaluate Priority A errors and provide
an email response to LICENSEE within 24 hours of receiving the error.
PLC agrees to provide a fix to LICENSEE within a best effort time frame.
PLC will email to LICENSEE a daily report on the status of these errors.
PLC will use its reasonable efforts to evaluate Priority B errors and
provide a response to LICENSEE within 72 hours of receiving the error.
PLC agrees to provide a fix to LICENSEE within an agreed upon time. PLC
will email to LICENSEE a weekly report on the status of the errors.
PLC will respond to priority C errors on an "as time permits" basis. PLC
will email to LICENSEE a quarterly report on the status of these errors.
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6.5 In consideration for the support services specified in this Section,
LICENSEE agrees to pay to PLC annual support fees (the "SUPPORT FEES") according
to the schedule specified in Exhibit E of this Agreement. The SUPPORT FEES are
payable upon execution of this Agreement and again on each anniversary of this
Agreement during the term of this Agreement.
6.6 If PLC fails to provide the support services specified in section 6.4 above,
LICENSE may terminate those services and the obligation to pay the SUPPORT FEEs
upon one (1) year's notice to PLC without terminating this Agreement.
7. UPDATES
7.1 During the term of this Agreement, PLC will provide to LICENSEE all UPDATES
of the LICENSED SOFTWARE no later than PLC provides the foregoing to any other
customer, and, in any event, prior to PLC's commercial release of the foregoing.
7.2 PLC and LICENSEE agree to meet no less than once a year during the term of
this Agreement to plan the requirements of other future UPDATES. PLC intends to
keep the LICENSED SOFTWARE competitive during the term of this agreement, and
shall make reasonable efforts to incorporate LICENSEE's suggestions into future
UPDATES. PLC shall remain the sole determiner of the contents of future UPDATES,
except as otherwise stipulated herein.
7.3 In consideration for the rights to UPDATES specified in this Section,
LICENSEE agrees to pay to PLC annual update fees (the "UPDATES FEES") according
to the schedule specified in Exhibit F of this Agreement. The UPDATE FEES are
payable upon execution of this Agreement and again on each anniversary of this
Agreement during the term of this Agreement.
8. TERM AND TERMINATION
8.1 This Agreement shall commence on the date first written above, and shall
continue for a period of six (6) years from such date. It will automatically
renew for periods of four (4) years at a time thereafter unless a) canceled in
writing by LICENSEE not less than six months prior to any such renewal, or b)
canceled in writing by PLC not less than four (4) years prior to any such
renewal.
8.2 PLC may increase the prices of the SUPPORT FEES, UPDATE FEES or LICENSE FEES
in any renewal of this Agreement. The prices for any SUPPORT FEES, UPDATE FEES
or LICENSE FEES in any such renewal shall not be increased by more than 30%
unless PLC has notified LICENSEE of its intent to raise prices in excess of 30%
not less than four (4) years prior to the renewal date.
8.3 Either party may terminate this Agreement (a) if the other fails materially
to comply with any provision of this Agreement and does not: (i) correct such
failure within thirty (30) days after written notice of such failure to comply
is delivered; or (ii) if such failure cannot reasonably be corrected within the
aforesaid thirty (30) day period, undertake within ten (10) days after such
written notice is delivered, and continue, efforts to comply or (b) in the event
of (i) liquidation or insolvency of the other party; (ii) the appointment of a
receiver or similar officer for a material portion of the other party's assets;
(iii) a general assignment by the other party for the benefit of creditors; (iv)
the filing of a petition in bankruptcy by the other party, or the filing of such
a petition against the other party which is not dismissed within sixty (60)
days; or (v) the other party's ceasing to conduct business in the normal course.
8.4 If at any time after the first twelve (12) months of this Agreement PLC has
not released and provided to LICENSEE a COMPETITIVE UPDATE during the preceding
twelve (12) months, then LICENSEE
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shall be entitled to provide written notice thereof to PLC. If LICENSEE provides
such notice, and within six (6) months after such notice PLC does not release
and provide to LICENSEE a COMPETITIVE UPDATE then the SUPPORT FEES, UPDATE FEES
and per unit LICENSE FEES shall be reduced by 5% per fiscal quarter for each
fiscal quarter starting with the third full quarter after such notice was first
given to PLC and ending when this Agreement is terminated. If at any time after
such notice, PLC provides to LICENSEE a COMPETITIVE UPDATE then any then
effective reductions pursuant to this paragraph shall terminate, and the SUPPORT
FEES, UPDATE FEES and LICENSE FEES shall thereafter be restored to the amounts
specified in Exhibits D and E of this Agreement.
8.5 Upon termination of this agreement for any reason, LICENSEE shall
immediately discontinue distribution of the LICENSED SOFTWARE, and shall destroy
all copies of the LICENSED SOFTWARE in its possession, excepting those copies
required to provide continuing support to CUSTOMERs that were distributed the
LICENSED SOFTWARE prior to such termination. End User Licenses properly granted
pursuant to this Agreement shall not be diminished or abridged by termination of
this Agreement for whatever cause.
8.6 LICENSEE agrees to pay all amounts due to PLC under this Agreement within
thirty (30) days after the effective date of termination or expiration of this
Agreement. Neither the expiration of this Agreement nor the termination of
LICENSEE's rights hereunder shall relieve LICENSEE of its obligation to pay any
such fee hereunder.
8.7 All obligations of the parties which expressly or by their nature survive
the expiration or termination of this Agreement, including the parties'
confidentiality, warranty and indemnity obligations, shall continue in full
force and effect subsequent to and notwithstanding its expiration or termination
and until they are satisfied in full or by their nature expire.
9. CONFIDENTIAL INFORMATION; PROPRIETARY RIGHTS
9.1 PLC considers the LICENSED SOFTWARE to contain valuable trade secrets of PLC
and licensors of PLC, the unauthorized disclosure of which could cause
irreparable harm to PLC and its licensors.
9.2 LICENSEE agrees not to reverse compile or disassemble the LICENSED SOFTWARE,
or to use the LICENSEE SOFTWARE other than for the purposes authorized by this
Agreement.
9.3 LICENSEE acknowledges and agrees that nothing herein grants it any ownership
rights to the LICENSED SOFTWARE, or any trademarks copyrights, trade secrets and
patents relating thereto.
9.4 The confidentiality obligations contained in this section shall continue
after any termination of this Agreement
10. WARRANTIES; LIMITATION OF LIABILITY
10.1 PLC represents and warrants to LICENSEE that it has sufficient right in and
to the LICENSED SOFTWARE to grant the license granted to LICENSEE under this
Agreements, without conflict with any other PLC agreement or obligation,
including sufficient rights in any technology included as part of the LICENSED
SOFTWARE, and that there are no pending or threatened claims or lawsuits
outstanding of infringement or which, if successful, would cause PLC to be
unable to grant the license granted to LICENSEE under the Agreement.
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10.2 PLC warrants to LICENSEE that the LICENSED SOFTWARE will substantially
perform in the manner described in the LICENSED DOCUMENTATION and, as delivered
to LICENSEE, shall be free from any computer software viruses or harmful code.
PLC's sole obligation under this warranty shall be limited to using reasonable
efforts to supply LICENSEE with a corrected version of the LICENSED SOFTWARE as
soon as practicable after LICENSEE has notified PLC of any such failure to
perform.
10.3 EXCEPT AS EXPRESSLY SET FORTH HEREIN, PLC MAKES NO OTHER WARRANTIES TO
LICENSEE, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS AND IMPLIED WARRANTY OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10.4 EXCEPT FOR PLC'S OBLIGATIONS TO INDEMNIFY LICENSEE HEREUNDER, IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS
INTERRUPTION, LOSS OF BUSINESS INFORMATION OR OTHER PECUNIARY LOSS) WHETHER
ARISING ON CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY THAT SUCH DAMAGES MAY ARISE. BECAUSE SOME
JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF CONSEQUENTIAL OR
INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY. THESE LIMITATIONS,
HOWEVER, SHALL NOT APPLY TO LIABILITY WITH RESPECT TO PERSONAL INJURY, DEATH, OR
PHYSICAL DAMAGE TO PROPERTY.
11. INFRINGEMENT INDEMNITY.
11.1 In the event that the LICENSED SOFTWARE is, or in PLC's sole opinion, is
likely to become the subject of a claim of infringement of a patent, trade
secret, copyright, or other intellectual property right PLC shall, at its option
and expense, (a) procure for LICENSEE and its CUSTOMERs the right to continue
using and distributing the LICENSED SOFTWARE or (b) replace or modify the
LICENSED SOFTWARE with a version that is non-infringing, but performing
substantially equivalent functions. If neither of the foregoing alternatives is
reasonably available to PLC and, as a result of such a claim of infringement,
distribution of the LICENSED SOFTWARE is permanently enjoined, then PLC may
terminate this Agreement upon thirty (30) days written notice to LICENSEE.
11.2 PLC will defend, at its own expense, any action brought against LICENSEE or
its DISTRIBUTORS or CUSTOMERS to the extent that it is based on a claim that the
LICENSED SOFTWARE, or the use of the LICENSED SOFTWARE as described in the
LICENSED DOCUMENTATION, infringes any patent, trade secret, copyright, or other
intellectual property right. PLC will indemnify LICENSEE, its DISTRIBUTORS and
CUSTOMERS from any damages and fees awarded against LICENSEE, its DISTRIBUTORS
and CUSTOMERS and will hold LICENSEE, its DISTRIBUTORS and CUSTOMERS harmless
against all claims which are attributable to such claim, provided that LICENSEE
notifies PLC promptly in writing of the claim. LICENSEE shall permit PLC to
defend, compromise or settle the claim and shall provide all available
information, assistance and authority to enable PLC to do so. So long as PLC
performs its obligations pursuant to this section, LICENSEE shall have no
authority to settle any claim on behalf of PLC. LICENSEE shall be entitled to
participate in the defense of any such claim or action, at its expense, through
counsel of its choosing.
11.3 PLC shall have no liability for any claim of infringement to the extent
caused by the (a) use of other than the latest release of the LICENSED SOFTWARE
from PLC, if such infringement could have been avoided by the use of the then
latest release of the LICENSED SOFTWARE and such latest version had been
available to LICENSEE under this Agreement, (b) use of the LICENSED SOFTWARE in
an environment other than as specified in the LICENSED DOCUMENTATION, (c) use or
combination of the LICENSED SOFTWARE with software, hardware or other materials
not provided by PLC, or (d) modification of the LICENSED SOFTWARE by any person
other than PLC.
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12. MISCELLANEOUS PROVISIONS
12.1 ASSIGNMENT.. Except as explicitly stated herein, neither this
Agreement nor any rights hereunder, in whole or in part, shall be assignable or
otherwise transferable by LICENSEE and any purported assignment or transfer
shall be null and void. PLC agrees that all of LICENSEE's rights and
obligations hereunder, including the right to license PLC's products and the
obligation to pay royalties to PLC, may be assigned by LICENSEE to any legal
entity with which all or substantially all of LICENSEE's assets have been
combined, merged, restructured or reconstituted to create a new successor
entity; provided, however, that no such assignment shall be construed as to
relieve LICENSEE or such successor entity of any of LICENSEE's obligations
hereunder.
12.2 ACQUISITIONS AND MERGERS. If at any time during the term of this Agreement
PLC enters into serious discussions directly or through a third party to sell or
merge the company or its assets, PLC agrees to notify LICENSEE within 30 days of
entering such conversations. PLC agrees that, as a condition of any sale of PLC
assets that include the LICENSED SOFTWARE, PLC will require that the purchaser
take assignment of this Agreement, so that all of LICENSEE's rights pursuant to
this Agreement survive, and the purchaser assumes all of PLC's obligations
pursuant to this Agreement.
12.3 ARBITRATION. Any dispute relating to the terms, interpretation or
performance of the Agreement (other than claims for preliminary injunctive
relief or other pre-judgment remedies) shall be resolved at the request of
either party through binding arbitration. Arbitration shall be conducted in New
Jersey under the rules and procedures of the American Arbitration Association
("AAA"). The parties shall request that the AAA appoint a panel of three
arbitrators and, if feasible, include one arbitrator who shall posses knowledge
of computer software; however the arbitration shall proceed even if such a
person is unavailable.
12.4 EXCLUSIVITY. LICENSEE shall have no marketing or other obligation as a
result of the exclusive nature of the license to LICENSEE.
12.5 PAYMENTS. All payments to PLC made under this Agreement are to be made via
check in United States Dollars and immediately payable to PLC in the total
amount of the payment owed.
12.6 CONFIDENTIALITY. The parties agree to keep the terms of this Agreement
confidential, and to not disclose any portion thereof to any third party without
the others written consent. The foregoing shall not apply to any disclosure (i)
required by legal, accounting or regulatory authorities; (ii) as otherwise
required by law; (iii) to legal counsel of the parties, accountants, and other
professional advisors; (iv) in confidence, to banks, investors and other
financing sources and their advisors; (v) in connection with the enforcement of
this Agreement or rights under this Agreement; or (vi) in confidence, in
connection with an actual or prospective merger or acquisition or similar
transaction.
12.7 NO JOINT VENTURE. It is expressly understood that the parties are acting as
independent contractors hereunder and not as an agent or representative of the
other. This Agreement does not constitute a joint venture. Neither party shall
enter into any contract or commitment on behalf of the other.
12.8 FORCE MAJEURE. Neither party shall be held responsible for any reasonable
delay or failure in performance hereunder caused by fires, strikes, embargoes,
acts of God, or other similar causes beyond their reasonable control.
12.9 PUBLIC ANNOUNCEMENTS. Upon execution of this Agreement, PLC may list
LICENSEE as a customer of PLC in materials provided to third parties under
formal non-disclosure agreements. When licensee first ships the LICENSED
SOFTWARE to a CUSTOMER, a) PLC may list LICENSEE as a customer of PLC in
materials provided to third parties without requiring a formal non-disclosure
agreement, and b) PLC may issue a press release, subject to the approval of
LICENSEE, which shall not be unreasonably withheld.
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12.10 BANKRUPTCY. PLC acknowledges that if PLC or its trustee in bankruptcy
reject this Agreement under the provisions of the Bankruptcy Code, LICENSEE may
elect to retain its rights under this Agreement as provided in Section 365(n) of
the Bankruptcy Code. PLC of such trustee in bankruptcy shall not interfere with
the rights of LICENSEE as provided in this Agreement.
12.11 NOTICE. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given
either when personally delivered or when deposited in the US mail, registered
or certified, postage prepaid, return receipt requested, to the addresses set
forth below:
To LICENSEE: Auspex Systems, Inc.
2300 Central Expressway
Santa Clara, CA 95050
Attn: Chief Financial Officer
To PLC: Programmed Logic
200 Cottontail Lane
Somerset, NJ 08873
Attn: Contract Administration
12.12 ENTIRE AGREEMENT. This Agreement and Exhibits constitute the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersede any and all prior agreements between the parties hereto
with respect to the subject matter hereof. No amendment to this Agreement shall
be effective unless in writing signed by each party.
12.13 SEVERABILITY. This Agreement shall be deemed severable, and the invalidity
or unenforceability of nay term or provision hereof shall not affect the
validity or enforceability of this Agreement or of any other term or provision
hereof. Furthermore, in lieu of any such invalid or unenforceable term or
provision, the parties hereto intend that there shall be added as a part of this
Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
12.14 EFFECT OF HEADINGS. Any headings contained herein are for convenience only
and shall not affect the construction hereof.
12.15 GOVERNING LAW. The provisions of this Agreement, and all the rights and
obligations of the parties hereunder, shall be governed by and construed in
accordance with the laws of the State of New Jersey without regard to principles
of conflicts of law.
12.16 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which hall be deemed to be an original, and all such counterparts shall
constitute one instrument.
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AGREED TO AND ACCEPTED AS OF THE DATE FIRST WRITTEN ABOVE:
FOR LICENSEE:
------------------------------------
Signature
------------------------------------
Name (Please Print)
------------------------------------
Title
------------------------------------
FOR PLC:
Signature
------------------------------------
Name (Please Print)
------------------------------------
Title
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EXHIBIT A - LICENSED SYSTEM
A LICENSED SYSTEM is defined as an [***].
The FILE SERVER product line contains [***].
[***] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
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EXHIBIT B - LICENSED SOFTWARE
The Licensed Software is defined as the current and future releases following
PLC products:
[***]
[***] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
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EXHIBIT C - DEVELOPMENT
PLC agrees to make the following enhancements to the LICENSED SOFTWARE
(including any corresponding modifications to tge LICENSED DOCUMENTATION),
and to use its best efforts to complete these enhancements according to the
following schedule:
[***]
[***] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursant to a confidential treatment request.
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EXHIBIT D - LICENSE FEE SCHEDULES
The LICENSE FEE for a LICENSED SYSTEM shall be [***] of the published list price
of that LICENSED SYSTEM, based upon PLC's standard pricing for each product
licensed:.
<TABLE>
<CAPTION>
BUNDLED PRICE
AS PERCENTAGE OF
BASE LICENSED
PRODUCT SYSTEM PRICE
------------------------------ ----------------------
<S> <C> <C> <C>
[***] [***]
[***] [***]
[***] [***]
[***] [***]
TOTAL LICENSE FEE [***]
</TABLE>
LICENSEE agrees that the terms of this Agreement are contingent upon the license
of all the LICENSED SOFTWARE for all LICENSED SYSTEMS shipped during the term of
this Agreement, and that the above breakdown of LICENSE FEE percentages do not
imply that LICENSEE may remove any portion of the LICENSED SOFTWARE to achieve a
reduction in the LICENSEE FEE.
[***] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
Proprietary & Confidential
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT E - ANNUAL SUPPORT FEES
------------------------------------------------------------
YEARLY PRIORITY
PRODUCT SUPPORT
------------------------------------------------------------
<S> <C> <C> <C>
[***]
[***] - Material omitted here, and filed separately with the
Securities and Exchange Commission, pursuant to a
confidential treatment request.
------------------------------------------------------------
</TABLE>
Proprietary & Confidential
<PAGE> 33
Page 17
<TABLE>
<CAPTION>
EXHIBIT F - ANNUAL UPDATE FEES
-------------------------------------------------------
PRODUCT YEARLY UPDATE
SUBSCRIPTION
-----------------------------------------------------------
<S> <C> <C> <C>
[***]
[***] - Material omitted here, and filed separately with the
Securities and Exchange Commission, pursuant to a
confidential treatment request.
------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.34
================================================================================
MASTER VALUE ADDED
DISTRIBUTOR AGREEMENT
EFFECTIVE DATE
21 MAY 1997
BY
AND
BETWEEN
AUSPEX SYSTEMS, INC.
AND
FUJI XEROX CO., LTD.
================================================================================
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS..................................................................7
a. "Products".............................................................7
b. "Territory"............................................................7
c. "System"...............................................................7
d. "Sales Plan"...........................................................7
e. "Sales Period".........................................................7
f. "Fuji Xerox Reseller"..................................................7
2. APPOINTMENT AND AUTHORITY OF FUJI XEROX......................................8
a. Appointment............................................................8
b. Products...............................................................8
c. Relationship of the Parties............................................8
d. Prior Agreements.......................................................9
3. TERMS OF PURCHASE OF PRODUCTS BY FUJI XEROX..................................9
a. Terms and Conditions...................................................9
b. Prices.................................................................9
c. Price Protection.......................................................9
d. Taxes..................................................................10
e. Order and Acceptance...................................................10
f. Terms of Purchase Orders...............................................10
g. Change Orders..........................................................10
h. Payment................................................................10
i. Shipping...............................................................11
j. Rejection of Products..................................................11
k. Stock Rotation.........................................................12
l. Software Supplier Requirements.........................................12
m. Life Endangering & Life Support Applications...........................12
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
4. WARRANTY TO FUJI XEROX.......................................................13
a. Limited Warranty.......................................................13
b. Support Services - AUSPEX Obligations..................................13
c. Support Services - FUJI XEROX Warranty and Post-Warranty
Responsibilities and Obligations.......................................14
d. Pricing................................................................15
e. Payment................................................................16
f. No Other Warranty......................................................16
5. INSTALLATION AND SERVICE.....................................................16
6. ADDITIONAL OBLIGATIONS OF FUJI XEROX.........................................17
a. Sales Plan and Forecasts...............................................17
b. Product Promotion......................................................17
c. Demonstration Equipment................................................17
d. Customer Satisfaction..................................................17
e. Representations........................................................17
f. Import and Export Requirements.........................................17
g. Indemnification Regarding Subsidiaries and Affiliates..................18
h. Inventory Report.......................................................18
i. Market Development.....................................................18
j. Sales Promotion........................................................18
k. Product Quality........................................................18
7. ADDITIONAL OBLIGATIONS OF AUSPEX.............................................18
a. Materials..............................................................18
b. Testing................................................................18
c. Training and Support...................................................18
d. Marketing Fund.........................................................18
e. Coop Fund..............................................................19
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
8. TERM AND TERMINATION.........................................................19
a. Term...................................................................19
b. Termination for Cause..................................................19
c. Termination for Insolvency.............................................19
d. AUSPEX Actions on Termination..........................................19
e. Fulfillment of Orders upon Termination.................................20
f. Return of Materials....................................................20
g. Audit Rights...........................................................20
h. Limitation on Liability................................................20
i. Survival of Certain Terms..............................................20
9. PRODUCT LIABILITY SECTION
a. General Limitation.....................................................20
b. Third Party Indemnification required by Japanese Law...................21
10. PROPERTY RIGHTS AND CONFIDENTIALITY..........................................21
a. Property Rights........................................................21
b. Sale Conveys No Right to Manufacture or Copy...........................21
c. No Reverse Engineering.................................................21
11. CONFIDENTIAL INFORMATION.....................................................21
a. Confidential Information...............................................21
b. Restrictions...........................................................22
c. Limitations............................................................22
d. Remedy.................................................................22
12. INFRINGEMENT INDEMNITY.......................................................22
a. Indemnification........................................................22
b. Limitation.............................................................23
13. TRADEMARKS AND TRADE NAMES...................................................23
a. Use....................................................................23
b. No Title...............................................................23
c. Approval of Representations............................................23
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C>
14. GOVERNMENT APPROVALS.........................................................23
15. EXPORT CONTROLS..............................................................24
a. Compliance.............................................................24
b. No Re-export...........................................................24
16. FORCE MAJEURE................................................................24
17. NOTICES......................................................................25
18. ARBITRATION..................................................................25
a. Arbitration of Disputes................................................25
b. Exceptions.............................................................26
19. GOVERNING LAW................................................................26
20. PARTIAL INVALIDITY...........................................................26
21. COUNTERPARTS.................................................................26
22. COMMERCIAL POLICY............................................................26
a. No Unauthorized Payments...............................................26
b. Government Official....................................................27
c. Notification...........................................................27
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C> <C>
23. GENERAL......................................................................27
a. U.S. Dollars...........................................................27
b. Visas..................................................................27
c. Amendments.............................................................27
d. Waiver.................................................................27
e. Conflicts..............................................................27
f. Assignment.............................................................27
g. Approvals..............................................................28
h. Authority..............................................................28
i. English Language.......................................................28
24. ENTIRE AGREEMENT.............................................................28
</TABLE>
EXHIBITS
EXHIBIT A - U.S. Domestic Price List
EXHIBIT B - AUSPEX Systems, Inc. Operating System Software License
Agreement
EXHIBIT C - AUSPEX Systems, Inc. Right-To Use Software License Agreement
EXHIBIT D - Spare Parts Price List
EXHIBIT E - Sales Plan
EXHIBIT F - Resource Plan
EXHIBIT G - Post-Warranty Support Pricing
ATTACHMENT I - Pricing Discount(s) For Period
6
<PAGE> 7
MASTER VALUE ADDED DISTRIBUTOR AGREEMENT
This Master Value Added Distributor Agreement ("Agreement") is effective as of
21 May 1997 between AUSPEX Systems, Inc. ("AUSPEX"), a Delaware corporation,
located at 5200 Great America Parkway, Santa Clara, California 95054, U.S.A.,
and FUJI XEROX Co., Ltd. ("FUJI XEROX") a Japanese corporation located at 1-20
Akasaka 6-Chome, Minato-ku Tokyo, 107 Japan. In consideration of the mutual
promises contained herein, the parties agree as follows:
WHEREAS, the intent of this Agreement is to expand AUSPEX business in Japan in
collaboration with FUJI XEROX Network Product Business Unit, who is acting on
behalf of FUJI XEROX Co., Ltd. and therefore is herein referred to as FUJI
XEROX. And,
WHEREAS, the OEM Agreement between AUSPEX and FUJI XEROX shall be terminated,
except for those surviving terms, and replaced by this Master Value Added
Distributor Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
1. DEFINITIONS
The following terms shall have the following meanings in this Agreement:
"Products" shall mean those products offered in the AUSPEX U.S. price
list as amended from time to time. An example price list is included in
Exhibit A. Products may be distinguished by categories, and the term
"Products" shall include spare parts and tools sold by AUSPEX to the
public. The term "Products" may also include AUSPEX products with
"Argoss" Brand which are in FUJI XEROX's inventory as of May 21, 1997,
and of which FUJI XEROX has sold with "Argoss" brand by May 21, 1997.
"Territory" shall mean Japan.
"System" shall mean a single AUSPEX NetServer and associated
configurables, options, and peripherals.
"Sales Plan" shall mean the Product sales plan attached hereto as
Exhibit E.
"Sales Period" shall mean the calendar quarter.
"Fuji Xerox Resellers" shall mean those companies approved by Auspex for
sale of Auspex Products thru FUJI XEROX. Such approved Reseller will
lose accreditation if there are commercially reasonable reasons mutually
agreed by both FUJI XEROX and AUSPEX.
7
<PAGE> 8
2. APPOINTMENT AND AUTHORITY OF FUJI XEROX
a. Appointment.
i. Subject to the terms and conditions set forth herein, AUSPEX hereby
appoints FUJI XEROX as a Master Value Added AUSPEX-label Distributor,
for the purpose of non-exclusive distribution of Products to resellers
and double label OEMs in the Territory of Japan for the Products under
AUSPEX's Trademarks (as defined in Section 13), and FUJI XEROX hereby
accepts such appointment. All Products supplied to FUJI XEROX by AUSPEX
will be resold only in accordance with the terms and conditions of this
Agreement.
ii. Notwithstanding the above, FUJI XEROX may sell Products to FUJI
XEROX's Direct sales force for resale to end users.
iii. FUJI XEROX shall not advertise, market, or otherwise seek customers for
the Products outside the Territory or establish a Product branch or a
repair or maintenance facility outside the Territory without the
written consent of AUSPEX. During the term of this Agreement, FUJI
XEROX shall actively promote the selling of AUSPEX products in
applications where AUSPEX performance specifications meet the
requirements.
iv. Nothing in this Agreement shall restrict AUSPEX from selling Products
to any customers headquartered outside of the Territory for delivery in
the Territory. Nothing in this Agreement shall prevent AUSPEX from
selling Products, including AUSPEX-label products, to any OEMs, or
other resellers, except FUJI XEROX's Resellers, including without
limitation such resellers which are located within the Territory and/or
which resell in the Territory. It is understood that AUSPEX shall fully
support FUJI XEROX as a Master Value Added Distributor for its market
expansion, and that, subject to AUSPEX's sole discretion, AUSPEX may
appoint FUJI XEROX as an exclusive distributor in the Territory at a
future time.
v. In the event that Products that are standard AUSPEX-label products are
purchased directly from AUSPEX and shipped within the Territory, and
FUJI XEROX can demonstrate a substantial contribution has been made by
FUJI XEROX with respect to the sale, the parties shall review the
circumstances, on a case by case basis, and may agree that a commission
should be paid to FUJI XEROX with respect to that sale. Nothing in this
Agreement, however, shall obligate AUSPEX to pay to FUJI XEROX a
commission with respect to any particular Product sale.
b. Products. Products may be discontinued by AUSPEX provided that AUSPEX
gives ninety (90) days prior written notice to FUJI XEROX, or some
other period as defined by AUSPEX's standard end of life policies. Upon
receipt of such written notice, where possible, FUJI XEROX shall be
allowed to place end-of-life orders for terminated Product(s) for up to
60 days from receipt of written notice, and provided that such orders
will have a requested delivery date of less than 120 days from date of
order placement. AUSPEX shall have no obligation to continue the
production of any Product.
AUSPEX will provide FUJI XEROX with written notice sixty (60) days in
advance of the effective date of any Product deletion where the deleted
Product is being replaced by a successor or substitute Product.
c. Relationship of the Parties. Each party shall conduct the work to be
performed under this Agreement as an independent contractor and not as
a joint venturer or an agent or employee of the other party. All
financial obligations associated with FUJI XEROX's business are the
sole responsibility of FUJI XEROX. All sales and other agreements
between FUJI XEROX and its customers are FUJI XEROX's
8
<PAGE> 9
exclusive responsibility and shall have no effect on AUSPEX's
obligations under this Agreement. FUJI XEROX shall have no authority to
act for or obligate AUSPEX in any manner.
d. Prior Agreements. It is expressly agreed that except for the surviving
provisions of the OEM Agreement of March 9,1993 and the Post Warranty
Support Agreement dated January 14, 1993 between AUSPEX and FUJI XEROX,
and except for all end user licenses granted in accordance with that
same Agreement, which shall survive in accordance with their terms of
license Agreement with end-users, all other Agreements and rights and
obligations of the parties, relative to any prior agreement(s) or
revisions thereto, shall cease and shall be terminated on the effective
date of this Agreement.
3. TERMS OF PURCHASE OF PRODUCTS BY FUJI XEROX
a. Terms and Conditions. All purchases of Products by FUJI XEROX from
AUSPEX during the terms of this Agreement shall be subject to the terms
and conditions of this Agreement.
b. Prices. All prices are F.O.B. AUSPEX's plant currently located at the
address listed for AUSPEX at the beginning of this Agreement. The
purchase price to FUJI XEROX for each of the Products, including spare
parts ("Purchase Price"), shall be in accordance with the then current
U.S. list price, as discounted in Attachment I. The discounts are
applicable to AUSPEX's current prodUcts, which will be reviewed and
agreed on an annual basis; [ *** ]
In the event that FUJI XEROX has any difficulty in doing its business
due to an unexpected situation, such as exchange fluctuation, both
parties will discuss in good faith to share the cost for improvement, in
order that FUJI XEROX can continue its normal business.
[ *** ]
[ *** ]
[ *** ]
c. [ *** ]
c. Taxes. The Purchase Price does not include any taxes or duties that may
be applicable to the Products. When AUSPEX has the legal obligation to
collect such taxes or duties, the appropriate amount shall be added to
FUJI XEROX's invoice and paid by FUJI XEROX unless FUJI XEROX
provides AUSPEX with a valid exemption certificate authorized by the
appropriate authority.
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
9
<PAGE> 10
e. Order and Acceptance. All orders for Products submitted by FUJI XEROX
shall be initiated by written purchase orders sent to AUSPEX and
requesting a delivery date during the term of this Agreement. Such order
shall be accompanied by all other documentation reasonably requested by
AUSPEX in connection with such purchase. An order may initially be
placed orally if a confirmational written or facsimile purchase order is
received by AUSPEX within five (5) days after the oral order is placed,
provided shipment is not expected prior to receipt of the confirming
written order. Facsimile orders are acceptable provided they are legible
and complete. To facilitate AUSPEX's production scheduling, FUJI XEROX
shall submit purchase orders to AUSPEX at least ninety (90) days prior
to the requested date of delivery. No order shall be binding upon AUSPEX
until accepted by AUSPEX in writing. AUSPEX shall notify FUJI XEROX of
the acceptance or rejection of an order and of the assigned delivery
date for accepted orders within ten (10) days after receipt of the
purchase order. In case AUSPEX considers it difficult to deliver the
Products on the delivery date specified in an accepted purchase order,
AUSPEX shall advise FUJI XEROX thereof within the ten (10) day period
and the parties shall discuss and determine a mutually acceptable
alternative delivery date.
f. Terms of Purchase Orders. FUJI XEROX's purchase orders submitted to
AUSPEX from time to time with respect to Products to be purchased
hereunder shall be governed by the terms of this Agreement, and nothing
contained in any such purchase order shall in any way modify such terms
of purchase or add any additional terms or conditions, unless AUSPEX and
FUJI XEROX specifically state in a writing other than such purchase
order that the terms of such purchase order are intended to modify the
terms of this Agreement.
g. Change Orders
i. FUJI XEROX may use written change orders without penalty for orders that
have not yet been accepted by AUSPEX.
ii. FUJI XEROX shall use its reasonable efforts not to request cancellation
or rescheduling of any accepted orders that have been accepted by
AUSPEX. However, FUJI XEROX may cancel or reschedule any such order,
without penalty, by delivering written notice to AUSPEX at least fifteen
(15) days prior to the ship date specified in AUSPEX's
corresponding order acknowledgment. When FUJI XEROX requests
rescheduling of any orders, AUSPEX shall use its reasonable efforts to
reschedule the delivery date as requested by FUJI XEROX.
h. [ *** ]
i. Shipping. Unless otherwise expressly requested by FUJI XEROX, all
Products delivered pursuant to the terms of this Agreement shall be
suitably packed for air freight shipment in AUSPEX's standard shipping
cartons, marked for shipment at FUJI XEROX's address set forth above,
and delivered to FUJI XEROX or FUJI XEROX's carrier agent F.O.B.
AUSPEX's factory at which time title to such Products (except licensed
software) and risk of loss shall pass to FUJI XEROX. FUJI XEROX shall
select the carrier. All freight, insurance, and other shipping expenses,
as well as any special packing or handling expense, shall be reimbursed
by FUJI XEROX. For any returned products received by FUJI XEROX a result
of an error by AUSPEX in shipment may be returned at AUSPEX's expense
for credit issued via wire transfer.
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
10
<PAGE> 11
j. Rejection of Products. All Products shipped for replacement under this
provision will be new unless otherwise agreed. FUJI XEROX shall inspect
all Products promptly upon receipt thereof and may reject any Product
that fails in any material way to meet the specifications set forth in
AUSPEX's current brochure for that Product. AUSPEX will provide new
replacement Products with no charge to FUJI XEROX, if FUJI XEROX finds
the Products defective within thirty (30) days from the date of shipment
to the end-users ( "Rejection Period") Any Product not properly rejected
within the "Rejection Period" shall be deemed accepted on the earlier of
the end of the Rejection Period or acceptance of the Product by FUJI
XEROX's customer. If any unit of a Product is shipped by FUJI XEROX to
its customer prior to expiration of the Rejection Period, then that unit
shall be deemed accepted upon receipt by FUJI XEROX unless or until a
separate procedure is established between AUSPEX and FUJI XEROX to
reject a separate Product. In any case, FUJI XEROX shall, within the
Rejection Period, notify AUSPEX in writing or by telecopy of its
rejection and request a Return Material Authorization number ("RMA
number"). AUSPEX shall provide the RMA number in writing (which may be
by email or telecopy) to FUJI XEROX within four (4) working days after
receipt of the request. Within 21 days after receipt of the RMA, FUJI
XEROX shall return to AUSPEX the rejected Product, freight prepaid, in
its original shipping carton with the RMA number displayed on the
outside of the carton.
As promptly as practicable but no later than twenty (20) working days
after receipt by AUSPEX of properly rejected Products, AUSPEX shall, at
its option and expense, take reasonable steps to either repair or
replace the Products. In case AUSPEX considers it difficult to repair
the returned Product within the twenty (20) working day period, AUSPEX
shall, within seven (7) working days after receipt of the returned
Product, notify FUJI XEROX thereof with reason for the delay and
estimated date of completion of the repair and obtain FUJI XEROX's
approval of such delay, which approval shall not be unreasonably
withheld. In such case, AUSPEX shall provide FUJI XEROX with replacement
Product at no charge. If, after the exercise of reasonable efforts,
AUSPEX is unable to repair or replace the Product, FUJI XEROX shall be
relieved of its payment obligation for such defective Product and AUSPEX
shall refund any payments made by FUJI XEROX for it, and AUSPEX shall
have no further liability to FUJI XEROX in connection with such Product.
For any properly rejected Products, AUSPEX shall pay all charges for
importation into the United States, if any, and shall also pay the
shipping (including costs for insurance) back to FUJI XEROX, and FUJI
XEROX shall pay all charges accompanied with re-importation of such
Products into the Territory.
k. [ *** ]
l. Software Requirements
FUJI XEROX agrees to comply with any standard AUSPEX sub-licensing
restrictions imposed by AUSPEX with respect to any software constituting
or incorporated into any Product. FUJI XEROX also agrees in all respects
to comply with and abide by all restrictions imposed by each third party
licensor or supplier of software or other items constituting or
incorporated into any Product. Without limiting the foregoing, FUJI
XEROX agrees to comply with and abide by each restriction and
requirement which AUSPEX is obligated to impose upon FUJI XEROX as a
distributor of AT&T Information Systems, Inc. and Sun Microsystems, Inc.
software licensed to AUSPEX, as set forth in the applicable provisions
of the portions of AUSPEX's agreements with these companies attached
hereto as Exhibits B and C, respectively.
[ *** ] - Material omitted here, and filed separately with the Securities
and Exchange Commission, pursuant to a confidential treatment request.
11
<PAGE> 12
Except as specifically granted in the attached license agreements marked
Exhibits B & C, and notwithstanding anything else to the contrary in
this agreement, this agreement grants no license, right or interest in
AUSPEX intellectual property, in any form whatever, whether for products
or software, complete or in design, whether stored electronically or in
written form on drawings or sketches, or whether patented copyrighted,
trademarked, or not.
m. Life Endangering and Life Support Applications
A. Products are not fault tolerant and are not designed, manufactured or
intended for use or resale as on-line control equipment in
environments requiring fail-safe performance where the failure,
malfunction, or lapse in the Product's reliability, whether or
not significant, carries a risk of death, bodily injury or severe
physical or environmental damage. These purposes or activities are
defined as "Prohibited Purposes" or "High Risk
Activities" which include, but are not limited to, nuclear
facilities, aircraft navigation or communication, air traffic
control, life support, or other environments where fault tolerant
performance is critical to the safety of the activity and any less
capability represents a recognizable hazard.
B. FUJI XEROX represents and warrants that it shall not knowingly use or
resell the products for such Prohibited Purposes. FUJI XEROX further
warrants that it shall ensure that any other end users of Products
are provided with a notice substantively similar to that set forth
above.
C. FUJI XEROX shall indemnify and hold AUSPEX, its officers, directors,
shareholders, employees, agents, insurers, attorneys, successors and
assigns harmless from and against any and all liability, losses,
claims, expenses (not including attorney's fees), demands or damages
of any kind arising out of or in any way connected with a breach of
the above representations or warranties or use; provided that AUSPEX
(i) promptly notifies FUJI XEROX in writing of such action, (ii)
provides FUJI XEROX with all reasonable assistance for the defense or
settlement of such action, and (iii) grants to FUJI XEROX sole
authority and control over the defense or settlement of such action
of any Product sold to FUJI XEROX.
4. WARRANTY TO FUJI XEROX
a. Limited Warranty. AUSPEX warrants that for the applicable Warranty
Period (as hereafter defined), the Products (i) shall be free from
defects in material and workmanship, and (ii) when
(A) operated in a suitable environment as specified in the
appropriate product description and
(B) properly maintained and operated, will perform substantially in
accordance with AUSPEX's applicable published specifications. If
a Product does not meet this standard, AUSPEX's exclusive
liability and obligations arising out of this warranty shall be
to exercise its reasonable efforts to provide the support
services described in this section (the "Support Services"). In
addition, AUSPEX's obligation under this warranty with respect
to software shall be limited to using its reasonable efforts to
correct such defects (or if the software is licensed to AUSPEX
by a third party, using its reasonable efforts to cause the
third party to correct such defect subject to AUSPEX's existing
agreements with such third parties) and supply FUJI XEROX with a
corrected version of such software as soon as practicable after
such defects have been reported to AUSPEX by FUJI XEROX. AUSPEX
does not warrant that operation of any software shall be
uninterrupted or error free. AUSPEX's warranty obligations shall
be void if any Product, or portion thereof, is modified without
the written consent of AUSPEX or is subjected to misuse, abuse,
accident, or any
12
<PAGE> 13
use other than the normal and intended use of the Product as
set forth in the applicable documentation for the Product. For
purposes of this Agreement, the Warranty Period shall be for a
period of 180 days for software and 180 days for hardware
commencing on the date of installation at the end-user
customer.* For hardware Products replaced by AUSPEX under this
warranty, this warranty will continue to apply for the
unexpired period of the original 180 day warranty term, or for
ninety (90) days following installation of the replacement
Product to end user, whichever is longer. FUJI XEROX will
report such installation date to AUSPEX. The warranty period
shall apply regardless of any extended warranty period which
FUJI XEROX or its resellers may choose to provide to end-users.
In case that Products are ordered by an end user as a System,
and that each Product for the System is installed separately to
the end user due to the different lead time of each Product or
FUJI XEROX's inventory status, beginning of Warranty Period
shall be the installation date of main cabinet of the System.
AUSPEX will sell to FUJI XEROX any materials required by FUJI
XEROX to implement any Product revision changes that may be
required to bring the Product to AUSPEX current shipping
revisions for that Product - both Operating System, Hardware
and Firmware. Such materials will be provided at no charge if
it is within 180 days from the date of Product shipment by
AUSPEX. Introduction to the Product, by FUJI XEROX or FUJI
XEROX Resellers, of any hardware products not supplied to FUJI
XEROX by AUSPEX will void the terms of both the warranty and
the post warranty support.
* Example of practice pertaining to calculation of Warranty Period: For
units installed on 10 May, 1 June is beginning of warranty period.
b. Support Services - AUSPEX Obligations. The post-warranty period for
Systems covered by this Agreement begins, provided a Support Agreement
is in place, at the end of the Warranty Period. During both the
warranty and post-warranty periods AUSPEX shall exercise reasonable
efforts to:
i. Provide third level technical support via facsimile, electronic mail,
or telephone calls 24 hours per day, 7 days per week, 365 days a year.
Such technical support shall include assistance in hardware and/or
software problem determination, software problem resolution, technical
and management escalation, remote diagnosis availability, and
distribution of technical tips and bulletins. When requested by FUJI
XEROX, AUSPEX will provide technical and sales support to FUJI XEROX's
direct sales force and FUJI XEROX Resellers by collaborating with FUJI
XEROX.
ii. Provide maintenance software updates as they are released by AUSPEX for
international distribution. These will consist initially of one copy of
media and documentation for each System covered by this Agreement for
which the warranty is in effect or which is covered by Warranty or a
Post-Warranty Support Agreement.
iii. Provide technical training of FUJI XEROX's support people as set forth
in this Agreement. AUSPEX will notify FUJI XEROX of class schedules as
they are developed, and confirm training availability to FUJI XEROX,
based upon FUJI XEROX's forecast of training requirements. AUSPEX will
also notify FUJI XEROX of any changes to class content.
iv. Provide notification to FUJI XEROX of Field Change Orders ("FCOs")
affecting any System purchased by FUJI XEROX. AUSPEX will plan
implementation of those FCOs with FUJI XEROX. FCOs will be implemented
by swapping affected Field Replaceable Units ("FRUs") on a one-for-one
basis, or by any other methodology in effect by AUSPEX for other
distributors of the Product.
v. Log service calls for both hardware failures and non-hardware problems
escalated by FUJI XEROX to AUSPEX. AUSPEX will maintain FUJI XEROX
system configurations in a database to aid in problem determination and
FCO management subject to subsection 4.c.viii.
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<PAGE> 14
vi. Provide defective part replacements to FUJI XEROX when notified by FUJI
XEROX of a FRU failure requiring part replacement. AUSPEX will provide
FUJI XEROX a Return Material Authorization ("RMA") number and ship
replacement parts, freight pre-paid, to FUJI XEROX within 24 hours of
notification. Replacement parts will be provided on a one-for-one
exchange basis, and defective parts are returned to AUSPEX after
replacement parts are received by FUJI XEROX.
vii. Provide on-site technical support if requested by FUJI XEROX. AUSPEX
will use reasonable efforts to provide this emergency support within
three (3) working days of such request.
viii. Offer spare parts under RMA process to FUJI XEROX, for a period of five
(5) years calculated from the date of FUJI XEROX's final order accepted
by AUSPEX for each of the Products, functionally equivalent maintenance,
replacement and repair parts for those products.
ix. Clarify the cause of Product failure, and provide trouble report to FUJI
XEROX when required by FUJI XEROX, at AUSPEX's own cost and
responsibilities. In case of delayed return of defective parts to AUSPEX
by FUJI XEROX, no priority shall be given to such failure analysis.
x. Make its best effort to maintain and improve Product quality in
cooperation with FUJI XEROX.
xi. Provide free support for one support system, and any other number as
mutually agreed, which FUJI XEROX may purchase from AUSPEX for the
Second Phase support.
xii. AUSPEX will provide FUJI XEROX with one free copy of a software license
for each Product and each system, which FUJI XEROX needs for the second
level support.
c. Support Services - FUJI XEROX Warranty and Post-Warranty
Responsibilities and Obligations. During both the warranty and
post-warranty periods, as a condition precedent to AUSPEX's obligations
in this section, FUJI XEROX shall:
i. As its own responsibility provide second level technical and sales
support to FUJI XEROX's direct sales force and FUJI XEROX's
resellers to ensure that its sales force and its resellers can provide
appropriate primary pre and post sales support. AUSPEX will provide free
technical training for up to four (4) individuals per year. AUSPEX will
review the Resellers' ability to provide post-sales support on an
annual basis; this review will be conducted by representatives of
AUSPEX's Customer Satisfaction Organization.
ii. Notify AUSPEX, by providing a Point of Sale (POS) Report by the last
calendar day of each month, of the systems that FUJI XEROX has installed
for that prior fiscal month ending the 20th of each month. The
information listed below, may be provided by either facsimile or
electronic mail:
System type
System serial number
Installation date
Customer name and location (when available)
Part number, serial number and revision level of all board
power supplies and drives in the system via the output of the
AUSPEX system command 'ax_config -d Warranty expiration
date
iii. Purchase and maintain spare parts in sufficient quantities (as
recommended by AUSPEX) to support FUJI XEROX's customers' systems.
iv. Send people to technical training at AUSPEX facilities in the U.S.
pursuant to Subsection 7.c.
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<PAGE> 15
v. Respond to FUJI XEROX's customers' calls and use reasonable efforts to
resolve the customers' problems prior to escalating such calls to
AUSPEX.
vi. Log requests for AUSPEX support including replacement parts with AUSPEX
via telephone or facsimile as soon as possible after determining a need
for such support, using processes and procedures agreed between AUSPEX
and FUJI XEROX.
vii. Return immediately both defective parts and parts requiring FCOs to
AUSPEX, freight pre-paid (responsibility of FUJI XEROX), to arrive at
an AUSPEX facility in the U.S. within 21 days of receipt of the
replacement part by FUJI XEROX. FUJI XEROX shall not 'batch' or
otherwise unnecessarily delay the return of such materials to AUSPEX.
If for any reason the defective or FCO parts are not received by AUSPEX
within the time specified above, then AUSPEX reserves the right to
review and revise the method of parts replacement.
viii. Plan with AUSPEX for the implementation of FCOs as they are released.
ix. Provide AUSPEX with system configuration updates periodically to assist
in the maintenance of AUSPEX system configuration database.
d. Pricing.
i. [ *** ]
ii. During any period other than the Warranty Period, FUJI XEROX will pay
AUSPEX in advance, a fixed fee per calendar quarter per System, per
Exhibit G attached hereto. Exhibit G maybe amended from time to time to
reflect new Products and prices. The number of Systems will be
determined at the end of each calendar month, and will be invoiced at
the end of each quarter, pro-rated from the first day of the month
following installation date, for the next quarter. Training and on-site
support, if requested, will be charged as follows:
(A) Training: Training in addition to that described in Subsection
7.c will be charged for per Exhibit G.
(B) On-Site Support: Emergency on-site support will be charged for
per Exhibit G.
(C) [ *** ]
d. Payment. FUJI XEROX will issue a purchase order to AUSPEX by the 1st
day of each quarter for the chargeable services contained herein.
AUSPEX will issue an invoice to FUJI XEROX by the 15th day of the first
month of each calendar quarter (January, April, July, October). FUJI
XEROX will pay AUSPEX within 30 days of receipt of such invoice. Ref.
Exhibit G.
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
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<PAGE> 16
f. NO OTHER WARRANTY. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH ABOVE,
AUSPEX HEREBY DISCLAIMS ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, BY
STATUTE OR OTHERWISE, REGARDING THE PRODUCTS INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES FOR FITNESS FOR ANY PURPOSE, QUALITY,
MERCHANTABILITY, NON-INFRINGEMENT, OR OTHERWISE, OR WARRANTIES ARISING
OUT OF A COURSE OF DEALING, TRADE USAGE, OR TRADE PRACTICE. AUSPEX MAKES
NO WARRANTY OR REPRESENTATION CONCERNING THE SUITABILITY OF ANY PRODUCT
FOR USE IN ANY COMPUTER NETWORK OR OTHER INSTALLATION, AND FUJI XEROX
ASSUMES FULL RESPONSIBILITY FOR SELECTION OF THE PRODUCTS. AUSPEX'S
OBLIGATIONS ARE TO FUJI XEROX ONLY AND ARE NOT TRANSFERABLE, AUSPEX
SHALL HAVE NO OBLIGATION OR LIABILITY TO ANY CUSTOMER OF FUJI XEROX, AND
FUJI XEROX SHALL BE EXCLUSIVELY RESPONSIBLE FOR WARRANTY SUPPORT OF ITS
CUSTOMERS.
5. INSTALLATION AND SERVICE
FUJI XEROX shall have the responsibility to install the Products, test
the installed Products, service and repair the Products, and train its
customers with respect to the use of Products sold. These services shall
be performed only by specially and properly trained personnel of FUJI
XEROX or a third party contracted by FUJI XEROX, so long as such third
party has received technical product training by AUSPEX, or equivalent
from FUJI XEROX, and shall be prompt and of the highest quality. FUJI
XEROX shall maintain a properly equipped service department as required
and shall keep on hand, at all times, accessories and equipment
sufficient to meet the needs of the Territory, as well as a complete and
adequate supply of spare parts, as recommended by AUSPEX from time to
time, to properly service Products used in the Territory. FUJI XEROX
shall pattern its services after AUSPEX's own domestic program. FUJI
XEROX is free to determine the pricing of its support program provided
to its customers. FUJI XEROX shall defend, indemnify, and hold AUSPEX
harmless for any failure by FUJI XEROX to perform any of FUJI XEROX's
obligations to any individual or entity.
6. ADDITIONAL OBLIGATIONS OF FUJI XEROX
a. Sales Plan and Forecasts. By the end of every FUJI XEROX fiscal quarter,
FUJI XEROX will submit to AUSPEX a best estimate, but non-binding,
six-month rolling forecast of FUJI XEROX's projected purchase quantities
showing prospective orders by customer and Product type, including spare
parts, training requirements, and intended delivery dates. Fuji Xerox
will endeavor to report known or potentially significant deviations from
the forecast on an as required or monthly basis. Significant deviations
are defined as those are changes that equate to 20% or more of the total
in a product type or overall product volume, and may include other
criteria that Fuji Xerox is made aware of by Auspex on a real time
basis.
b. Product Promotion. FUJI XEROX shall, at its own expense and consistent
with the sales policies of AUSPEX, vigorously promote the sale of the
Products within the Territory and use its best efforts to achieve or
exceed the Sales Plan. Such promotion shall include but not be limited
to:
i. placing the Products in FUJI XEROX's catalogues as soon as possible,
advertising the Products in trade publications, and featuring the
Products in appropriate trade shows;
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<PAGE> 17
ii. providing adequate contact with existing and potential customers within
the Territory on a regular basis, consistent with good business
practice;
iii. assisting AUSPEX in assessing customer requirements for the Products,
including modifications and improvements thereto, in terms of quality,
design, functional capability, and other features; and
iv. submitting market research information, as reasonably requested by
AUSPEX, regarding its customers, prospects, competition and changes in
the market within the Territory.
c. Demonstration Equipment. FUJI XEROX shall maintain three suitably
configured, operational demonstration System at FUJI XEROX's facility at
all times, which FUJI XEROX may purchase at special price or no charge.
The demonstration System shall be the most current model of AUSPEX's
primary Product line. AUSPEX will provide post warranty support for
demonstration equipment free of charge.
d. Customer Satisfaction. FUJI XEROX agrees to use AUSPEX's methods,
including but not limited to the Post Installation and Annual survey
processes, for measuring customer satisfaction, and will use its best
efforts to ensure that AUSPEX's customer satisfaction standards are
being achieved. AUSPEX and FUJI XEROX will formally review customer
satisfaction and the quality of FUJI XEROX's service and support program
no less frequently than once during each calendar quarter. AUSPEX will
be given full and free access to appropriate FUJI XEROX records to audit
FUJI XEROX's performance in this respect.
e. Representations. FUJI XEROX shall not make any false or misleading
representations to customers or others regarding AUSPEX or the Products.
FUJI XEROX shall not make any representations, warranties or guarantees
with respect to the specifications, features or capabilities of the
Products that are not consistent with AUSPEX's documentation
accompanying the Products or AUSPEX's literature describing the
Products.
f. Import and Export Requirements. FUJI XEROX shall, at its own expense,
pay all import and export licenses and permits, pay customs charges and
duty fees, and take all other actions required to accomplish the export
and import of the Products purchased by FUJI XEROX.
g. Indemnification Regarding Subsidiaries and Affiliates. AUSPEX desires
that it not be exposed to any liability as a result of the manner in
which FUJI XEROX organizes its operations in the Territory. Accordingly,
FUJI XEROX shall defend, indemnify, and hold harmless AUSPEX from any
costs, claims, or liabilities, incurred by FUJI XEROX for any matter
arising out of FUJI XEROX's activities with its subsidiaries or
affiliates arising out of this Agreement or any termination thereof.
h. Inventory Report. By the last calendar day of each month, FUJI XEROX
will submit an inventory report to AUSPEX, covering FUJI XEROX's prior
fiscal month ending 20th of each month. The inventory report includes
product name, product number, part number, serial number, and number of
inventory units.
i. Market Development. FUJI XEROX will make its commercially reasonable
efforts to develop its resellers in the Territory. FUJI XEROX will
obtain prior approval of AUSPEX before signing of reseller.
j. Sales Promotion. FUJI XEROX will make commercially reasonable efforts to
maximize sales of Products. AUSPEX will use its best efforts to support
such FUJI XEROX sales activities.
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<PAGE> 18
k. Product Quality Improvement. FUJI XEROX will spend its own resources for
Product quality improvement and customer satisfaction, including
incoming inspection, customer technical support, and others.
7. ADDITIONAL OBLIGATIONS OF AUSPEX
a. Materials. AUSPEX may provide FUJI XEROX, at AUSPEX's cost, with
marketing and technical information concerning the Products as well as
reasonable quantities of brochures, instructional material, advertising
literature, and other Product data, as well as artwork, photographs, and
such available sales aids as press releases, videotapes, and
demonstration programs.
b. Testing. AUSPEX shall test all Products before shipment to FUJI XEROX.
Each Product shall be accompanied by the test report specifying the
types of tests conducted and the results. AUSPEX shall conduct the tests
for Japanese standard such as VCCI, JATE, etc.
c. Training and Support. The sales training shall be tuition free, but FUJI
XEROX shall be responsible for all travel and living expenses of its
employees who take the sales training or other training identified in
Section 4.c. In addition, FUJI XEROX shall be entitled to have two (2)
FUJI XEROX employee representatives attend each AUSPEX annual sales
meeting and each AUSPEX new Product introduction.
d. [ *** ]
e. [ *** ]
8. TERM AND TERMINATION
a. Term. This Agreement shall continue in force until 20 May 1999 unless
terminated earlier under the provisions of this Section 8 or as
otherwise set forth herein. After the end of this initial term, or any
renewal period, for administrative convenience, this Agreement shall
renew automatically unless a written notice of termination is delivered
by either party to the other party at least six (6) months prior to the
end of the period. Any such automatic renewal shall be effective for the
immediately following one (1) year period.
b. Termination for Cause. If either party materially defaults in the
performance of any provision of this Agreement, then the non-defaulting
party may give written notice to the defaulting party describing the
default and stating that if the default is not cured within sixty (60)
days from the date such notice is deemed to be served this Agreement
will be terminated. If the default is not cured by the end of the sixty
(60) day period, this Agreement shall automatically terminate. In
addition, AUSPEX shall be entitled to terminate this Agreement, without
opportunity of FUJI XEROX to cure, (i) upon delivery of written notice
to FUJI XEROX in the event of a breach by FUJI XEROX of its obligations
pursuant to either Section 10 or Section 11 below, (ii) upon delivery of
written notice to FUJI XEROX if FUJI XEROX fails to meet its minimum
purchase obligations, if previously established, or (iii) five business
days after delivery by AUSPEX to FUJI XEROX of notice demanding payment
of any amounts owed by FUJI XEROX to AUSPEX hereunder if no such payment
has been received by AUSPEX within such five (5) day period. The parties
agree that these notice, cure and termination periods are commercially
reasonable.
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
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<PAGE> 19
c. Termination for Insolvency. Either party shall be entitled to terminate
this Agreement, on written notice to the other party, (i) if the other
party files a voluntary petition commencing bankruptcy proceedings or
other proceedings for the general settlement of its debts, or an
involuntary bankruptcy proceeding is commenced against the other party
and is not resolved in such party's favor within sixty (60) days, (ii)
if a receiver has been appointed over the whole or any substantial part
of the assets of the other party, (iii) if the other party makes a
general assignment for the benefit of creditors, or (iv) if the other
party dissolves, liquidates, or ceases the conduct of business in the
normal course, or takes any corporate action in furtherance thereof.
d. AUSPEX Actions on Termination. Upon any termination of this Agreement:
At FUJI XEROX's option communicated to AUSPEX in writing at least thirty
(30) days prior to the effective date of the termination, AUSPEX will
determine, on a case by case basis, the terms, if any, under which
AUSPEX will offer any warranty to any of FUJI XEROX's then current
customers. FUJI XEROX shall provide to AUSPEX all reasonable cooperation
to enable AUSPEX to perform any obligations it desires to provide for
such customers. To the extent FUJI XEROX has prepaid amounts to AUSPEX
for Product support, AUSPEX will provide an appropriate refund to FUJI
XEROX, if AUSPEX does not intend to provide such support.
e. Fulfillment of Orders Upon Termination. Upon termination of this
Agreement other than for FUJI XEROX's cause, breach or insolvency
or by AUSPEX pursuant to Section 8c, AUSPEX shall continue to fulfill,
subject to the terms of Section 3 above, all orders accepted by AUSPEX
prior to the date of termination.
f. Return of materials. All Confidential Information, trademarks, trade
names, patents, copyrights, designs, drawings, formulas or other data,
photographs, samples, literature, and sales aids of every kind shall
remain the property of AUSPEX. Within thirty (30) days after the
termination of this Agreement, FUJI XEROX shall prepare all such
tangible items in its possession for shipment, as AUSPEX may direct, at
AUSPEX's expense. FUJI XEROX shall not make, use, dispose of or retain
any copies of any confidential items, software, or information which may
have been entrusted to it. Effective upon the termination of this
Agreement, FUJI XEROX shall cease to use all intellectual property of
AUSPEX. Notwithstanding the foregoing, upon termination of this
Agreement other than for cause, insolvency or breach, FUJI XEROX shall
have the right to continue maintenance and support services for users of
the Products where FUJI XEROX deems necessary until AUSPEX or its
designee shall be prepared to take over such services and, in such case,
FUJI XEROX shall have the right to retain such materials necessary to
conduct the services and AUSPEX shall continue to supply spare parts and
other support is required and under the terms of this Agreement, subject
to payment terms satisfactory to AUSPEX.
g. Audit Rights. At any time, with reasonable notice, during the term of
this Agreement, and during the six (6) months after any termination of
this Agreement, AUSPEX shall be entitled, at its expense, to audit, or
have audited, FUJI XEROX's records which pertain to FUJI XEROX's
performance and compliance with its obligations, warranties, and
representations in this Agreement.
h Limitation on Liability. In the event of termination by either party in
accordance with any of the provisions of this Agreement, neither party
shall be liable to the other, because of such termination, for
compensation, reimbursement or damages on account of the loss of
prospective profits or anticipated sales or on account of expenditures,
inventory, investments, leases or Commitments in connection with the
business or goodwill of AUSPEX or FUJI XEROX.
Termination shall not, however, relieve either party of obligations
incurred prior to the termination.
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<PAGE> 20
i Survival of Certain Terms and Conditions. The provisions of Sections 3
(as to Products shipped after termination, but excluding 3.g & 3.k),
4.a, 4.e, 4.f, 6.g, 6.h, 8, 9, 10, 11, 12, and 14 through 23 shall
survive the termination of this Agreement for any reason and all
end-user licenses granted in accordance with this Agreement shall
survive in accordance with their terms of license Agreement with
end-users. All other rights and obligations of the parties shall cease
upon termination of this Agreement.
9. PRODUCT LIABILITY: GENERAL LIMITATION & THIRD PARTY INDEMNIFICATION
a. AUSPEX'S LIABILITY ARISING OUT OF THE SALE OF THE AUSPEX PRODUCTS SHALL
BE LIMITED TO THE AMOUNT PAID BY FUJI XEROX FOR THE AUSPEX PRODUCTS. IN
NO EVENT SHALL AUSPEX BE LIABLE FOR COSTS OF PROCUREMENT OR SUBSTITUTE
GOODS. IN NO EVENT SHALL AUSPEX BE LIABLE FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSED AND ON
ANY THEORY OF LIABILITY, ARISING OUT OF SUCH SALES. THESE LIMITATIONS
SHALL APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY
REMEDY, Provided THAT THE LIMITATION OF LIABILITY AS PROVIDED IN THIS
SECTION SHALL NOT, TO THE EXTENT REQUIRED BY THE JAPANESE PRODUCT
LIABILITY LAW, BE APPLIED TO THE PROVISIONS OF SECTION 9b.
b. AUSPEX agrees to indemnify FUJI XEROX against any claim directly arising
out of or resulting from the Agreement or a defect (kekkan) in the
Products (which is defined in Article 2 of the Japanese Product
Liability Law, Law No. 85 of 1994), provided that any such claim (i) is
attributable to bodily injury, death or injury to or destruction of
physical property (other than the Products), (ii) that FUJI XEROX
actually pays out damages on such claim to a third party claimant, and
(iii) with respect to claims which arise out of a defect of the
Products, that FUJI XEROX is able to provide to AUSPEX reasonable
evidence of such claim, which establishes based on a pursuing third
partyAfs claim that FUJI XEROX is liable to such third party under the
aforementioned Japanese Product Liability Law. This obligation on the
part of AUSPEX is subject to FUJI XEROXAfs obligation to (a) give AUSPEX
prompt written notice of any such claim, (b) grant AUSPEX control of the
defense and settlement of such claim, and (c) assist fully in the
defense provided that AUSPEX reimburses FUJI XEROXAfs out-of pocket
costs. AUSPEX has no liability for any settlement or compromise made
without its prior written consent.
10. PROPERTY RIGHTS AND CONFIDENTIALITY
a. Property Rights. FUJI XEROX agrees that this Agreement does not transfer
to FUJI Xerox any right, title, and interest in the Products or in any
patents, trademarks, trade names, inventions, copyrights, know-how, and
trade secrets relating to the design, manufacture, operation or service
of the Products. The use by FUJI XEROX of any of these rights is
authorized only for the purposes herein set forth, and, except as
otherwise expressly set forth herein, such authorization shall cease
upon termination of this Agreement for any reason.
b. Sale Conveys No Right to Manufacture or Copy. The Products are offered
for sale and are sold by AUSPEX subject in every case to the condition
that such sale does not convey any license, expressly or by implication,
to manufacture, duplicate or otherwise copy or reproduce any of the
Products.
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<PAGE> 21
c. No Reverse Engineering. FUJI XEROX shall not, and shall not assist
others to, reverse engineer any of the Products or any portion thereof.
FUJI XEROX shall notify AUSPEX if FUJI XEROX becomes aware of any
individual or entity attempting to reverse engineer any Products or any
portion thereof.
11. CONFIDENTIAL INFORMATION
a. Confidential Information. The term "Confidential Information" shall
mea n (i) any information disclosed by one party to the other pursuant
to this Agreement which is in written graphic, machine readable or
other tangible form and is marked "Confidential", "Proprietary" or in
some other manner to indicate its confidential nature, and (ii) the
terms of this Agreement. Confidential Information may also include oral
information disclosed by one party to the other pursuant to this
Agreement, provided that such information is designated as confidential
at the time of disclosure and is reduced to writing by the disclosing
party within a reasonable time (not to exceed thirty (30) days) after
its oral disclosure, and such writing is marked in a manner to indicate
its confidential nature and delivered to the receiving party. The
parties agree that FUJI XEROX can be identified as an authorized value
added distributor of AUSPEX in the Territory.
b. Restrictions. Each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential
Information except as set forth herein, and shall not disclose such
Confidential Information to any third party except as may be reasonably
required in connection with the manufacture, use, sale or distribution
of Products pursuant to this Agreement, and subject to confidentiality
obligations at least as protective as those set forth herein. Without
limiting the foregoing, each of the parties shall use at least the same
degree of care which it uses to prevent the disclosure of its own
confidential information of like importance to prevent the disclosure
of Confidential Information disclosed to it by the other party under
this Agreement. Each party hereby acknowledges as to the other's
Confidential Information that such Confidential Information is
commercially and competitively valuable, that, by this Agreement, each
party is taking reasonable steps to protect its legitimate interest in
its Confidential Information and that the restrictions contained in
this Agreement are reasonably necessary in order to protect each
party's legitimate interest in its Confidential Information.
c. Limitations. Notwithstanding the above, neither party shall have
liability to the other with regard to any Confidential Information of
the other which:
i. was in the public domain at the time it was disclosed or becomes in the
public domain through no fault of the receiver;
ii. was known to the receiver, without restriction, at the time of
disclosure;
iii. is disclosed with the prior written approval of the discloser;
iv. was independently developed by the receiver without any use of the
Confidential Information;
v. becomes known to the receiver, without restriction, from a source other
than the discloser without breach of this Agreement by the receiver and
otherwise not in violation of the discloser's rights;
vi. is disclosed to third parties by the discloser without restrictions
similar to those contained in this Agreement; or
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<PAGE> 22
vii. is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body, provided, however,
that the receiver shall provide prompt notice thereof to enable the
discloser to seek a protective order or otherwise prevent such
disclosure.
d. Remedy. Unauthorized use by either party of Confidential Information
provided to it by the other party hereunder will diminish the value to
the other party of such information. Therefore, if either party
breaches any of its obligations with respect to confidentiality and
unauthorized use of Confidential Information hereunder, the other party
shall be entitled to equitable relief, without the necessity of posting
bond or other security, to protect its interest therein, including but
not limited to injunctive relief, as well as money damages.
12. INFRINGEMENT INDEMNITY
a. Indemnification. AUSPEX shall have the right to defend or settle, and
AUSPEX shall defend or settle, any claim, proceeding or suit ("Claim")
against FUJI XEROX or its customers for infringement of any patent,
copyright, trademarks, servicemarks or trade names arising from the
sale or use of any Product, subject to the limitations set forth below.
AUSPEX shall have sole control of any action or settlement and shall
pay any final judgment entered against FUJI XEROX or its customers on
such issue in any Claim defended by AUSPEX. AUSPEX shall have no
obligation under the foregoing unless FUJI XEROX notifies AUSPEX
promptly in writing of such Claim and gives AUSPEX authority to proceed
as described above, and gives AUSPEX full information and assistance to
defend or settle such Claim. If any Product or any part of any Product
is or in AUSPEX's opinion may become the subject of any such Claim, or
if a court determines that a Product or any part of a Product infringes
any patent or copyright, then AUSPEX may at its option and expense
either (i) procure for FUJI XEROX and its customers the right under
such patent or copyright to sell or use the Product or such part or
(ii) replace the Product or part with other suitable Products or parts
or (iii) modify the Product or part to end such infringement or (iv)
remove the Product or part and refund the aggregate payment paid by
FUJI XEROX less a reasonable sum for use and damage. AUSPEX shall not
be liable for any cost or expense incurred without its prior written
authorization.
B. LIMITATION. NOTWITHSTANDING SECTION 12.a, AUSPEX SHALL HAVE NO
LIABILITY FOR (i) INFRINGEMENT CAUSED BY USE OF THE PRODUCTS, OR ANY
PORTION OF A PRODUCT, IN COMBINATION WITH ANY OTHER EQUIPMENT,
ASSEMBLY, CIRCUIT, COMBINATION, METHOD, OR PROCESS IF SUCH INFRINGEMENT
WAS CAUSED BY SUCH COMBINATION; OR (ii) INFRINGEMENT INVOLVING THE
MODIFICATION OR SERVICING OF THE PRODUCTS BY ANY PERSON OTHER THAN
AUSPEX. IN ANY EVENT, AUSPEX SHALL HAVE NO LIABILITY OR OBLIGATIONS
CONCERNING ANY ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHTS OR OTHER
INTELLECTUAL PROPERTY RIGHTS BY ANY PRODUCT OR ANY PART THEREOF, OTHER
THAN AS SET FORTH IN THIS SECTION.
13. TRADEMARKS AND TRADE NAMES
a. Use. During the term of this Agreement, and notwithstanding Section 11,
AUSPEX and FUJI XEROX shall have the right to indicate to the public
that FUJI XEROX is an authorized Master Value Added Distributor of
AUSPEX's Products and to advertise (within the Territory) such Products
under the trademarks, marks, and trade names that AUSPEX may adopt from
time to time ("AUSPEX's Trademarks"). FUJI XEROX shall not alter or
remove any AUSPEX Trademark applied to the Products at the factory.
22
<PAGE> 23
b. No Title. Except as set forth in this section, nothing contained in this
Agreement shall grant to FUJI XEROX any right, title or interest in
AUSPEX's Trademarks.
c. Approval of Representations. All representations of AUSPEX's Trademarks
that FUJI XEROX intends to use shall first be submitted to AUSPEX for
approval (which shall not be unreasonably withheld) of design, color,
and other details or shall be exact copies of those used by AUSPEX. If
any of AUSPEX's Trademarks are to be used in conjunction with another
trademark on or in relation to the Products, then AUSPEX's mark shall be
presented equally legibly, equally prominently, and of greater size than
the other but nevertheless separated from the other so that each appears
to be a mark in its own right, distinct from the other mark.
14. GOVERNMENT APPROVALS
If at any time any government or agency having jurisdiction over either
party hereto should require, directly or indirectly, any alteration or
modification of any term or condition of this Agreement or of the
performance by the parties under this Agreement in a manner which has a
material adverse effect on the other party hereto, then that party which
suffers from such alteration or modification may give written notice to
the other party setting forth its objection to such alteration or
modification and requesting consultation between the parties hereto
relative to such alteration or modification. Not later than thirty (30)
days after the giving of such notice, the parties shall discuss in good
faith the possibilities of a mutually satisfactory resolution of such
objection; provided, however, that if the parties hereto fail to reach
agreement in writing on any mutually satisfactory resolution within
ninety (90) days after the date of giving of such notice of objection,
the suffering party shall have the right to terminate this Agreement, on
a second written notice to the other party. The parties acknowledge and
agree that, in the event of any such termination pursuant to this
section, the party which elects to terminate shall not incur any
liability to the other party for any alleged default in the performance
of this Agreement arising from the exercise of its termination rights
under this section.
15. EXPORT CONTROLS
a. Compliance. Any and all obligations of AUSPEX to provide products,
software, documentation or any media in which any of the foregoing is
contained, as well as any technical assistance shall be subject in all
respects to such United States laws and regulations as shall from time
to time govern the license and delivery of technology and products
abroad by persons subject to the jurisdiction of the United States (the
"Export Laws"). FUJI XEROX agrees to cooperate with AUSPEX, including,
without limitation, providing required documentation and re-export
assurance letters, to obtain export licenses, or exemptions thereon and
to otherwise comply with such laws and regulations. FUJI XEROX warrants
that it will comply with all Export and other United States' laws
as may be in effect from time to time. AUSPEX shall have the right, upon
reasonable notice, to audit any books and records of FUJI XEROX
concerning FUJI XEROX's compliance with this Section 14. FUJI XEROX
shall indemnify AUSPEX against any cost, claim, or liability arising out
of any failure by FUJI XEROX to comply with this Section 14.
b. No Reexport. Without in any way limiting the provisions of this
Agreement (including Territorial restrictions), FUJI XEROX agrees that
it will not export, re-export, or transship, directly or indirectly, any
of the technical data or software disclosed or provided to FUJI XEROX
(or the direct product of such technical data or software) to any
country or jurisdiction into which export or re-export is
23
<PAGE> 24
prohibited by the Export Laws unless prior written authorization is
obtained from the Bureau of Export Administration explicitly permitting
such export or re-export.
c. Disclosure. FUJI XEROX agrees to include on each Purchase Order placed
with AUSPEX the complete name of the final purchaser of each system, if
the name is available. If the purchaser is unknown at the time of
purchase, FUJI XEROX agrees to provide the name prior to shipment of the
system to the ultimate consignee, if possible. FUJI XEROX further agrees
to advise its customers that AUSPEX products are controlled commodities
which may not be re-exported without permission of the Bureau of Export
Administration.
16. FORCE MAJEURE
If the performance of this Agreement or any obligations hereunder,
except the making of payments, is prevented, restricted or interfered
with by reason of fire or other casualty or accident, strikes or labor
disputes, supplier delay if caused by force majeure, war or other
violence, any law, order, proclamation, regulations, ordinance, demand
or requirement of any government agency, or any other act or condition
beyond the reasonable control of the parties hereto, the party so
affected upon giving prompt notice to the other party shall be excused
from such performance to the extent of such prevention, restriction or
interference provided that the party so affected shall use its
reasonable best efforts to avoid or remove such causes of nonperformance
and shall continue performance hereunder with the utmost dispatch
whenever such causes are removed.
17. NOTICES
Notice by either party under this Agreement shall be in writing and
personally delivered or given by registered (if available) airmail, by
overnight courier, or by telecopy, telegram, or telex confirmed by
registered (if available) airmail, addressed to the other party at its
address given in this section (or at such other address as may be
communicated to the other party in writing in accordance with this
section) and shall be deemed to have been served upon personal delivery,
five (5) days after deposit in the mail, or upon confirmation of
electronic transmission, provided that if delivery is not accomplished
by reason of some fault of the addressee, it shall be deemed effective
when tendered. The parties addresses are as follows:
If to AUSPEX: AUSPEX Systems, Inc.
5200 Great America Parkway
Santa Clara, CA 95054
USA
Attention: General Counsel
If to FUJI XEROX: FUJI XEROX Co., Ltd.
Network Product Business Unit
Kokusai Shin-akasaka Bldg. West 13F
24
<PAGE> 25
6-1-20, Akasaka, Minato-ku
Tokyo 107 JAPAN
Attention: Toshiyuki Hiramatsu, General Manager
18. ARBITRATION
a. Arbitration of Disputes. All disputes controversies or differences which
may arise between the parties, out of or in relation to or in connection
with this Agreement, or for the breach thereof, shall be finally settled
by arbitration in Santa Clara, California by and pursuant to the Rules
of the American Arbitration Association, by which each party shall be
bound. The arbitrator shall apply California law to the merits of any
disputes or claim, without reference to rules of conflicts of law. The
arbitral proceedings and all pleadings and written evidence shall be in
the English language. Any written evidence originally in a language
other than English shall be submitted in English translation accompanied
by the original or a true copy thereof. The arbitration proceedings
shall be conducted in secrecy. Any judgment rendered against FUJI XEROX
shall be enforceable in the Territory with no less force and effect than
if such judgment were rendered by a court of competent jurisdiction in
the Territory. The award rendered by the arbitrator shall be final and
binding upon the parties and may be enforced in any court of competent
jurisdiction.
b. Exceptions. Notwithstanding the foregoing, before appointment of the
arbitrator and in exceptional circumstances even thereafter, the parties
may apply to any court of competent jurisdiction in Santa Clara County,
California for a temporary restraining order, preliminary injunction, or
other interim, equitable or conservatory relief, as necessary, without
breach of this arbitration agreement and Without any abridgment of the
powers of the arbitrator. The parties consent to the personal and
exclusive jurisdiction and venue of these courts for this purpose.
19. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, United States of America, excluding
its conflict of laws principles to the extent they would apply the laws
of another jurisdiction and excluding the United Nations Convention on
Contracts for the International Sales of Goods.
20. PARTIAL INVALIDITY
If any provision in this Agreement shall be found or be held to be
invalid or unenforceable in any jurisdiction in which this Agreement is
being performed, then the meaning of said provision shall be construed,
to the extent feasible, so as to render the provision enforceable, and
if no feasible interpretation would save such provision, it shall be
severed from the remainder of this Agreement which shall remain in full
force and effect. In such event, the parties shall negotiate, in good
faith, a substitute, valid and enforceable provision which most nearly
effects the parties' intent in entering into this Agreement. If the
parties are unable to negotiate such a substitute provision within
ninety days from the date the original provision was found or held to be
invalid, this Agreement will terminate.
25
<PAGE> 26
21. COUNTERPARTS
This Agreement may be executed in two (2) or more English language
counterparts or duplicate originals, all of which shall be regarded as
one and the same instrument, and which shall be the official and
governing version in the interpretation of this Agreement.
22. COMMERCIAL POLICY
a. No Unauthorized Payments. AUSPEX and FUJI XEROX each agrees that it will
not, in connection with this Agreement or its performance hereunder,
directly or indirectly offer, pay, promise to pay or authorize the
payment of any money or other consideration to any government official
or to any person, while knowing or having reason to know that all or a
portion of such money or other consideration will be offered, given or
promised, directly or indirectly, to a government official for the
purpose of:
i. influencing any act or decision of such government official,
including a decision to fail to perform his or her official functions;
or
ii. inducing such government official to use his or her influence with any
government or instrumentality thereof to affect or influence any act or
decision of such government or instrumentality, to assist AUSPEX or FUJI
XEROX in obtaining or retaining business or directing business, to any
other party.
b. Government Official. As used in this Section 21, the term "government
official" means any officer or employee of any government or any
department, agency, instrumentality or wholly owned corporation thereof,
or any person acting in an official capacity for or on behalf of any
such government or department, agency, instrumentality or wholly-owned
corporation thereof, or any candidate for political office.
c. Notification. FUJI XEROX shall notify AUSPEX immediately of any
extortive solicitation, demand, or other request for anything of value,
by or on behalf of any government official or employee of any government
and directed to FUJI XEROX related to the Product.
23. GENERAL
a. U.S. Dollars. All dollar amounts in this Agreement are in United
States dollars.
b. Visas. Each party shall assist the other in securing any necessary visas
or permits required for visits by the personnel referred to herein to
either the Territory or the United States of America, as the case may
be.
c. Amendments. No alteration, amendment, waiver, cancellation or any other
change in any term or condition of this Agreement shall be valid or
binding on either party unless the same shall have been mutually
assented to in writing by both parties.
d. Waiver. The failure of either party to require performance by the other
party of any provision of this Agreement will not affect the full right
to require such performance at any time thereafter, nor will waiver by
either party of a breach of any provision be taken or held to be a
waiver of the provision itself.
26
<PAGE> 27
e. Conflicts. In the event of any conflict or inconsistencies between the
provisions of this Agreement and the provisions of any exhibits attached
hereto or the provisions of any documents incorporated by reference, the
provisions of this Agreement shall prevail.
f. Assignment. This Agreement shall inure to the benefit of, and shall be
binding upon, the parties hereto and their respective successors and
assigns, but neither party may subcontract, assign or delegate any of
its duties under this Agreement without the prior written consent of the
other, except that each party may assign this Agreement to a person into
which it has merged or who has otherwise succeeded to all or
substantially all of its business and assets, and who has assumed in
writing or by operation of law its obligations under this Agreement. Any
attempted assignment in violation of this section shall cause this
Agreement to terminate immediately and automatically.
g. Approvals. In each case where approval or consent of either party is
required hereunder, such approval or consent shall not be unreasonably
withheld.
h. Authority. Each party warrants that it has the full power and authority
to enter into and perform its obligations under this Agreement, and each
person signing on each party's behalf represents and warrants that he or
she is duty authorized to execute this Agreement on behalf of such
party.
i. English Language. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof
in any other language shall be for accommodation only and shall not be
binding upon the parties hereto. All communications and notices made or
to be made or given pursuant to this Agreement, unless otherwise
provided for herein, shall be in the English language. All training,
support, maintenance, and other materials shall be provided by AUSPEX
only in English.
24. ENTIRE AGREEMENT
The terms and conditions herein contained, including Exhibits and
Attachments, constitute the entire agreement between the parties and
supersede all previous agreements and understandings, whether oral or
written, between the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed.
AUSPEX SYSTEMS, INC. FUJI XEROX CO., LTD.
By: By:
------------------------ -----------------------------
Print Name: Print Name:
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
27
<PAGE> 28
EXHIBIT A - U.S. DOMESTIC PRICE LIST
Current U.S. Published Price List Applies at time of purchase
28
<PAGE> 29
EXHIBIT B -
AUSPEX SYSTEMS, INC.
OPERATING SYSTEM SOFTWARE RIGHT-TO-USE LICENSE
AUSPEX Operating System Software
Right-to-Use License
Read the terms and conditions of this license carefully before using the
software or the accompanying user documentation. By using them you are accepting
and agreeing to the terms and conditions of this license agreement and of the
Frame Technology License Agreement and the Fore Systems License Agreement, the
texts of which are found in the system documentation and upgrade kits. If you
are not willing to agree to the terms and conditions of these licenses, you
should return the software and accompanying documentation unused within fifteen
(15) days of purchase and you will receive a refund of any money which you paid.
1. License to use: You are granted a non-exclusive and non-transferable
license ("License") to use the operating system software, set forth in
the AUSPEX Product Price List ("Software") which you have licensed, and
any derivative works thereof, modifications, enhancements, and
extensions provided by AUSPEX to you, and including, without limitation,
operating instructions and user manuals, on the machine for which you
have paid the appropriate fee.
2. Restrictions: Software is copyrighted and title to all copies is
retained by AUSPEX and/or its licensors. You shall not make copies of
Software, other than a single copy of Software for archival purposes
and, if applicable, you may, for your internal use only, print the
number of copies of on-line documentation for which the applicable fee
has been paid, in which event all proprietary rights notices on Software
shall be reproduced and applied. You shall not modify, decompile,
disassemble, decrypt, extract, or otherwise reverse engineer Software.
3. Confidentiality: Software is confidential and proprietary information of
AUSPEX and/or its licensors. You agree to take adequate steps to protect
Software from unauthorized disclosure or use.
4. Warranty: AUSPEX warrants that Software shall substantially conform to
its users' manual, as it exists at the date of delivery, for a period of
ninety (90) days from the date of delivery. AUSPEX's sole obligation
under this warranty shall be limited to using its reasonable best
efforts to correct defects and supply you with a corrected version of
Software as soon as practicable after you have notified AUSPEX of such
defects. AUSPEX does not warrant that (l) operation of Software shall be
uninterrupted or error free, or (2) functions contained in Software
shall operate in the combinations which may be selected for use by you
or meet your requirements. AUSPEX's warranty obligations shall be void
if Software is modified without the written consent of AUSPEX.
5. Disclaimer of Warranty: EXCEPT AS SPECIFIED IN THIS LICENSE AGREEMENT,
ALL EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS AND WARRANTIES,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, SATISFACTORY QUALITY OR NON-INFRINGEMENT, ARE HEREBY
EXCLUDED.
6. Limitation of Liability: IN NO EVENT WILL AUSPEX AND/OR ITS LICENSORS OR
SUPPLIERS BE LIABLE FOR ANY LOST REVENUES OR PROFITS OR DATA OR OTHER
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES, HOWEVER CAUSED AND
29
<PAGE> 30
REGARDLESS OF THEORY OF LIABILITY ARISING OUT OF THE USE OF OR INABILITY
TO USE SOFTWARE EVEN IF AUSPEX AND/OR ITS LICENSORS OR SUPPLIERS HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. In no event shall
AUSPEX's liability to you, whether in contract, tort (including
negligence) or otherwise, exceed the license fee charged by AUSPEX for
Software.
7. Termination: This License is effective until terminated. You may
terminate this License at any time by destroying all copies of Software
including any documentation. This License will terminate immediately
without notice from AUSPEX if you fail to comply with any provision of
this License. Upon termination, you must destroy all copies of Software
and documentation.
8. Export Regulations: Software, including technical data, is subject to
U.S. export control laws, including the U.S. Export Administration Act
and its associated regulations, and may be subject to export or import
regulations in other countries. You agree to comply strictly with all
such regulations and acknowledge that you have the responsibility to
obtain licenses to export, re-export or import Software.
9. U.S. Government Restricted Rights: Use, duplication or disclosure by
the U. S. Government is subject to restrictions as set forth in
subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software Clause at DFARS 252.227-7013 (Oct. 1988) and FAR 52.227-19(c)
(June 1987) and in similar clauses in the FAR and NASA FAR supplement.
10. Governing Law: This Agreement is made under, shall be governed by and
construed in accordance with the laws of the State of California,
U.S.A., excluding its choice of law provisions.
11. Integration: This Agreement is the entire agreement between you and
AUSPEX relating to Software and: (i) supersedes all prior or
contemporaneous oral or written communications, proposals and
representations with respect to its subject matter; and (ii) prevails
over any conflicting or additional terms of any quote, order,
acknowledgment or similar communication between the parties during the
term of this Agreement. No modification to this Agreement will be
binding unless in writing and signed by a duly authorized representative
of each party.
30
<PAGE> 31
EXHIBIT C -
AUSPEX SYSTEMS, INC. RIGHT-TO-USE LICENSE
AUSPEX Stand-Alone Software
Right-to-Use License
Read the terms and conditions of this license carefully before using the
software or the accompanying user documentation. By using them you are accepting
and agreeing to the terms and conditions of this license agreement. If you are
not willing to agree to the terms and conditions of this license, you should
return the software and accompanying documentation unused within fifteen (15)
days of purchase and you will receive a refund of any money which you paid.
1. License to use: You are granted a non-exclusive and non-transferable
license ("License") for the use only of those portions of the
accompanying software for which you have purchased the right to use and
for which you have received a "key", together with its accompanying
documentation ("Software") on the machine for which you have paid the
appropriate fee.
2. Restrictions: Software is copyrighted and title to all copies is
retained by AUSPEX and/or its licensors. You shall not make copies of
Software, other than a single copy of Software for archival purposes
and, if applicable, you may, for your internal use only, print the
number of copies of on-line documentation for which the applicable fee
has been paid, in which event all proprietary rights notices on Software
shall be reproduced and applied. You shall not modify, decompile,
disassemble, decrypt, extract, or otherwise reverse engineer Software.
3. Confidentiality: Software is confidential and proprietary information of
AUSPEX and/or its licensors. You agree to take adequate steps to protect
Software from unauthorized disclosure or use.
4. Warranty: AUSPEX warrants that Software shall substantially conform to
its users' manual, as it exists at the date of delivery, for a period of
ninety (90) days from the date of delivery. AUSPEX's sole obligation
under this warranty shall be limited to using its reasonable best
efforts to correct defects and supply you with a corrected version of
Software as soon as practicable after you have notified AUSPEX of such
defects. AUSPEX does not warrant that (l) operation of Software shall be
uninterrupted or error free, or (2) functions contained in Software
shall operate in the combinations which may be selected for use by you
or meet your requirements. AUSPEX's warranty obligations shall be void
if Software is modified without the written consent of AUSPEX.
5. Disclaimer of Warranty: EXCEPT AS SPECIFIED IN THIS LICENSE AGREEMENT,
ALL EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS AND WARRANTIES,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, SATISFACTORY QUALITY OR NON-INFRINGEMENT, ARE HEREBY
EXCLUDED.
6. Limitation of Liability: IN NO EVENT WILL AUSPEX AND/OR ITS LICENSORS OR
SUPPLIERS BE LIABLE FOR ANY LOST REVENUES OR PROFITS OR DATA OR OTHER
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES, HOWEVER CAUSED AND
REGARDLESS OF THEORY OF LIABILITY ARISING OUT OF THE USE OF OR INABILITY
TO USE SOFTWARE EVEN IF AUSPEX AND/OR ITS LICENSORS OR SUPPLIERS HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. In no event shall
AUSPEX's liability to you, whether in contract, tort (including
negligence) or otherwise, exceed the license fee charged by AUSPEX for
Software.
31
<PAGE> 32
7. Termination: This License is effective until terminated. You may
terminate this License at any time by destroying all copies of Software
including any documentation. This License will terminate immediately
without notice from AUSPEX if you fail to comply with any provision of
this License. Upon termination, you must destroy all copies of Software
and documentation.
8. Export Regulations: Software, including technical data, is subject to
U.S. export control laws, including the U.S. Export Administration Act
and its associated regulations, and may be subject to export or import
regulations in other countries. You agree to comply strictly with all
such regulations and acknowledge that you have the responsibility to
obtain licenses to export, reexport or import Software.
9. U.S. Government Restricted Rights: Use, duplication or disclosure by
the U. S. Government is subject to restrictions as set forth in
subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software Clause at DFARS 252.227-7013 (Oct. 1988) and FAR 52.227-19(c)
(June 1987) and in similar clauses in the FAR and NASA FAR supplement.
10. Governing Law: This Agreement is made under, shall be governed by and
construed in accordance with the laws of the State of California,
U.S.A., excluding its choice of law provisions.
11. Integration: This Agreement is the entire agreement between you and
AUSPEX relating to Software and: (i) supersedes all prior or
contemporaneous oral or written communications, proposals and
representations with respect to its subject matter; and (ii) prevails
over any conflicting or additional terms of any quote, order,
acknowledgment or similar communication between the parties during the
term of this Agreement. No modification to this Agreement will be
binding unless in writing and signed by a duly authorized representative
of each party.
32
<PAGE> 33
EXHIBIT D - SPARE PARTS PRICE LIST
Current U.S. Published Price List Applies at time of purchase
33
<PAGE> 34
EXHIBIT E - SALES PLAN
FUJI XEROX will order the following:
Example: Eight NS7000/650 or equivalent and
Seven NS7000/651 or equivalent
during the period _______________ through __________________
Note: A minimum of ___ systems during this time frame is acceptable to AUSPEX.
34
<PAGE> 35
EXHIBIT F - RESOURCE PLAN
NOT APPLICABLE TO THIS FUJI XEROX CONTRACT
Staff from ________________________
35
<PAGE> 36
EXHIBIT G - POST-WARRANTY SUPPORT PRICING
For the support defined in Section 4 of the Agreement, FUJI XEROX shall pay
AUSPEX the prices defined in this Exhibit G, which maybe modified from
time-to-time. The prices indicated herein are non-discountable.
POST WARRANTY SUPPORT PRICING SCHEDULE.
FIXED QUARTERLY CHARGE:
<TABLE>
<CAPTION>
Product Type Fixed Charge per Quarter
<S> <C>
NS3000, 5xxx, or 6xxx [ *** ]
NS7000-50x, 60x, 650, 700 [ *** ]
NS7000-05x, 06x, 07x Exp. Cab. [ *** ]
NS7000-100, 150 [ *** ]
NS7000-200, 250 [ *** ]
NS7000-010 Exp. Cab. [ *** ]
DLT4000 Tape Drive [ *** ]
DLT4700 Mini Library [ *** ]
ACL 4/52 Tape Auto Library [ *** ]
DataGuard, NS7000-200 [ *** ]
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
DataGuard, NS7000-5/600 [ *** ]
ServerGuard, NS7000-200 [ *** ]
ServerGuard, NS7000-5/600 [ *** ]
NetBackup, 1xx/2xx Series, [ *** ]
with DLT4000
NetBackup, 1xx/2xx Series, [ *** ]
with DLT4700
NetBackup, 1xx/2xx Series, [ *** }
with ACL 4/52
NetBackup, 5/6/7xx Series, [ *** ]
with DLT4000
NetBackup, 5/6/7xx Series, [ *** ]
with DLT4700
NetBackup, 5/6/7xx Series, [ *** ]
with ACL 4/52
Future products to be added
</TABLE>
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
TRAINING CHARGE.
Training in addition to that described in Subsection 7.c(2) of this Agreement
will be charged for at U.S. list price per student per day less 20%. The Field
Engineer hardware class and the Systems Engineer class each runs for three (3)
days, ServerGuard class runs for 2 days.
37
<PAGE> 38
ON-SITE SUPPORT CHARGE.
U.S. [ *** ] from day of departure from AUSPEX facility until day of return to
AUSPEX facility, plus all travel related expenses (transportation,
accommodation, meals, etc.).
TIME AND MATERIALS CHARGES:
For those Systems not covered by either Warranty or Post-Warranty support as
defined in the Agreement, the following per incident support pricing shall
apply:
For 3rd level support, excluding materials, [ *** ] shall be charged.
For defective part exchange [ *** ] list price shall be charged. If the
part is not repairable, the full discounted spare part list price shall be
charged.
For FCO part exchange. [ *** ] exchanged shall be charged.
For O/S release updates the discounted list price for such O/S releases
shall be charged.
[ *** ] - Material omitted here, and filed separately with the Securities and
Exchange Commission, pursuant to a confidential treatment request.
38
<PAGE> 1
EXHIBIT 21.1
AUSPEX SYSTEMS, INC.
(As of June 30, 1999)
<TABLE>
<CAPTION>
Date of
Name Incorporation Place of Incorporation
- --------------------------------- ------------- ------------------------
<S> <C> <C>
Auspex Systems, Inc. 05/18/93 Delaware, USA
Auspex International, Inc. 07/19/93 California, USA
Systems Auspex, Inc. 07/02/93 Quebec, Canada
Auspex Systems Limited 08/23/93 Reading, United Kingdom
Auspex Systems GmbH 09/24/93 Munich, Germany
Auspex Systems S.A. 12/23/93 Paris, France
Auspex Foreign Sales Corporation 08/23/92 Barbados
Alphatronix, Inc. 08/24/87 North Carolina, USA
Auspex Kabushiki Kaisha (K.K.) 07/02/98 Tokyo, Japan
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.1
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements No. 33-67100, No. 33-76640, No. 333-00886, No.
333-56305, No. 333-71115 and No. 333-56307 on Form S-8.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
September 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 26,592
<SECURITIES> 16,045
<RECEIVABLES> 21,781
<ALLOWANCES> 1,407
<INVENTORY> 10,905
<CURRENT-ASSETS> 83,835
<PP&E> 70,429
<DEPRECIATION> 41,588
<TOTAL-ASSETS> 115,048
<CURRENT-LIABILITIES> 34,567
<BONDS> 0
0
0
<COMMON> 27
<OTHER-SE> 79,150
<TOTAL-LIABILITY-AND-EQUITY> 115,048
<SALES> 81,737
<TOTAL-REVENUES> 113,475
<CGS> 42,196
<TOTAL-COSTS> 65,794
<OTHER-EXPENSES> 88,489
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> (38,828)
<INCOME-TAX> 217
<INCOME-CONTINUING> (39,045)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,045)
<EPS-BASIC> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
